• Deteriorating industry outlook
• Still looking to divest FPSO business
• Keeping Lewek Constellation for now

1QFY16 another weak quarter

Ezra Holdings reported a 19% YoY rise in 1QFY16 revenue to US$152.3m but saw a 44% fall in gross profit to US$15.7m, leading to a net loss of US$55.3m. Of this, net loss from continuing operations was US$18.6m while net loss from discontinued operations was US$36.7m (recall that certain subsidiaries and associated companies related to the subsea services division have been classified as discontinued operations, as Ezra is selling its 50% stake in its subsea business to Chiyoda).

The higher revenue in 1QFY16 was mainly due to the better performance at Triyards, the group’s marine services division, but the offshore support division (shallow water PSV segment remains weak) dragged down the group.

Revising estimates lower

Our earlier forecast was a US$1.4m PATMI in FY16 for the group’s continuing operations, but given the deteriorating industry outlook, we lower our earnings estimates to a US$30.9m net loss. It is likely that we would see more downward earnings revisions on the street as well – the Bloomberg consensus for FY16 is a US$14.6m net profit prior to the release of this set of results.

Still plans to divest FPSO business; S/L of Constellation on hold

The transaction with Chiyoda is expected to be completed in Mar 2016. Meanwhile, the subsea order book is around US$520m which provides visibility for FY16. Looking ahead, Ezra expects its financial performance for the rest of FY16 “to remain challenging”. As for corporate initiatives, the sale and leaseback of Lewek Constellation has been put on hold, though there are still plans to divest the FPSO business.

Low valuations but lacks catalysts

The stock is now trading around 0.1x book, in part because of the general market sell-down, weak industry outlook and fears that further losses would be incurred before signs of a recovery can be seen. As the company is also in restructuring mode, there is lack of earnings clarity. Taking into account the depressed valuations across the industry and Ezra’s low ROE, we lower our fair value estimate for the stock from S$0.16 to S$0.10 (0.2x FY16 book). Maintain HOLD.

Source: OCBC Research - 15 Jan 2016