Hot stock: Ezra shares take a beating on proposed share consolidation

SHARES of offshore marine company Ezra Holdings took a beating on Wednesday following news of a proposed share consolidation.

The firm's counter closed 1.2 Singapore cents lower at 5.8 cents, tanking 17.1 per cent. 98.7 million shares changed hands.

Share consolidation tends to have a negative impact on the share price, but dealers flag that this hefty eight-to-one consolidation proposed by Ezra will severely dampen the counter's liquidity going forward.

"Market players have taken the view not to hold it over the consolidation period and they tend to sell before the consolidation," said a dealer with a local brokerage.

Shareholders will vote on the proposal at an extraordinary general meeting to be convened. The share consolidation comes as the six-month volume-weighted average price (VWAP) of Ezra, at S$0.117, is below the minimum trading price (MTP) requirement of S$0.20 for mainboard-listed stocks. Based on the MTP requirement, mainboard listings have to keep up a VWAP of S$0.20 on March 1 this year. Otherwise, they will be placed on a watch list and given three years to comply with the MTP or face delisting.

Prior to the announcement on share consolidation, Ezra group CEO and managing director Lionel Lee sold 11.5 million Ezra shares through his 100 per cent owned Jit Sun Investments for S$913,341 on Jan 12. It was unclear how this share sale took place five trading days before the disclosure on share consolidation.

"There is market talk there is some margin call pressure on his shares," said a dealer who declined to be named. "With that in mind, it explains why he is selling at this kind of depressed level."

Against the backdrop of an oil price rout, the group also posted last week a net loss of US$55.3 million for the three months ended Nov 30, 2015, compared to a net profit of US$54.4 million a year ago. One key drag was the company's offshore support and production services division, which is facing weak demand and price competition for its offshore support and accommodation ships.

This prompted DBS Group Research to downgrade its call on the stock to "hold" from "buy" previously, and to reduce its target price based on sum-of-the-parts valuation to eight cents from 30 cents previously.

"Ezra's valuations look very depressed at the moment but given the weak oil price outlook, potential heavy losses, and vulnerability to interest rate hikes, we do not see any investment merit for the stock," said DBS analyst Suvro Sarkar.