Ezra: RHB maintains a TRADING BUY with a lowered target price of $0.25 after accounting for the ongoing rights issue, calling that insolvency concerns have fallen drastically following the rights issue.
Ezra’s 3QFY15 cash from operations was a strong US$77.3m, bringing 9MFY15 cash generated to US$104.5m. Management has been successful in reducing the company’s cash conversion cycle to c.22 days in FY15 from 62 days in FY14. While core
operations face continuing headwinds, leading to muted profitability at the accounting level, RHB sees Ezra embarking on a deleveraging phase as capex falls to replacement levels, with management focusing on improving free cash flow generation.
The bond market has priced in these improvements with the falling bond yields, indicating its strengthening financial position and reduced solvency risks post-rights. But the equity market has not yet reflect this improvement, with the stock continuing to trade at an ex-rights P/B of 0.3x.
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