• Oil prices to remain weak
• Core business divisions affected
• Operations to remain challenging

Oil market no longer reliant on OPEC production cuts

After taking a tumble in 2H14, oil prices continued to be weighed down by strong production levels from OPEC, and lacklustre oil demand growth due to the still soft global economy. The notion that markets generally overshoot in the near term was again illustrated by a bounce in oil prices in the earlier part of 2015 to about US$62/bbl, but any hopes of an oil price recovery were dashed by OPEC’s steadfastness in keeping the taps open and the resilience of US shale production despite a rapidly declining working rig count.

Core divisions in Ezra affected by rout

Even if oil prices were to find a floor in the near term, they have to remain stable enough for the budgeting purposes of oil and gas companies. As such, there has been a significant pull back in the amount of new tenders, affecting other companies down in the value chain.

The subsea division of Ezra Holdings has been affected, with its order book now at around US$520m (vs. US$1.1b in FY14) The offshore support vessel division has also seen a drop in utilization rates as well as charter rates, and revenue contraction in FY16 is a likely scenario.

Meanwhile, the FPSO division is still enjoying a good uptime, but Ezra plans to divest this business. One brighter spot is the marine services segment, which is under Triyards Holdings.

Ceasing coverage

In our view, the group is still in restructuring mode and there is lack of earnings clarity as we expect the outlook for its operations to remain challenging, as seen from the recent results. We are also concerned that should the outlook deteriorates further and the general sell-down in the market continues, asset values may not hold, resulting in a liquidity crunch.

There are also no near-to-medium price drivers, as we are projecting losses for both FY16 and FY17. Along with a re-allocation of resources internally, we CEASE COVERAGE on Ezra Holdings.

Source: OCBC Research - 27 Jan 2016