Ezion Holdings (EZI SP) - UOB Kay Hian 2016-09-30: Harnesses The Wind To Their Favour

Ezion Holdings (EZI SP) - UOB Kay Hian 2016-09-30: Harnesses The Wind To Their Favour EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings (EZI SP) - Harnesses The Wind To Their Favour

  • Sources confirm the deployment of Unit#8 in the North Sea as per management’s guidance. The deployment comes earlier than we had expected, and adds a full month of earnings to our model. 
  • With earnings in 2Q16 likely to have bottomed out, 3Q16 could represent Ezion’s first qoq recovery since 2Q15. 
  • We adjust our 2016 core earnings forecast upwards by 1% and change our valuation benchmark, pricing Ezion directly to its liftboat peers. 
  • Maintain HOLD with a higher target price of S$0.30. Entry price at S$0.27.



WHAT’S NEW

  • Atlantic Amsterdam working for DONG Energy. According to various sources, Ezion has deployed Atlantic Amsterdam (Unit #8) in the North Sea for a 16-month contract for DONG Energy UK for an offshore windfarm installation project. The rig was on-site and has been in operation since 27 Aug 16.


STOCK IMPACT


Barring further operational surprises, 3Q16 might see a qoq earnings uptick. 

  • The deployment was as per management’s guidance for a 3Q16 deployment. We had originally pencilled in a late 3Q16 date. 
  • The earlier-than-expected deployment adds a month of earnings contribution from the unit. Assuming that the working status of the 17 units remains unchanged in 2Q16, and no other surprise expenses, a qoq earnings improvement might be seen.

Decoupling from O&G downturn with offshore wind farm installation. 

  • Management has been nimble with its strategy, venturing into the wind farm industry to mitigate the downturn. As earnings gradually decouple from the oil and gas (O&G) industry, we expect a valuation re-rating at some point.


EARNINGS REVISION/RISK


Tweak core 2016 earnings up by 1%. 

  • We raise our 2016 core earnings forecast by 1%, from US$52m to US$53m. The earnings adjustment arises from timing differences in our revenue recognition. Our 2017-18 earnings forecasts remain unchanged.


VALUATION/RECOMMENDATION


Maintain HOLD and raise target price to S$0.30. 

  • We raise our target price from S$0.23 to S$0.30, as we benchmark Ezion to its direct peer, Gulf Marine Services (GMS), at 0.4x 2017F P/B. 
  • While Ezion is seemingly on the cusp of an earnings recovery, we remain cautious of calling an outright bottom as we weigh impairment risks from Ausgroup. We are likely to turn more positive on the counter as oil prices stabilise at higher prices, which solidifies earnings visibility and allows for a switch to an earnings-driven valuation multiple. 
  • Maintain HOLD, entry price at S$0.27.




Foo Zhi Wei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-09-30
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 0.30 Up 0.230



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