Ezion Holdings Limited - Phillip Securities 2017-05-15: Endure The Stretching Trough

Ezion Holdings Limited - Phillip Securities 2017-05-15: Endure The Stretching Trough EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings Limited - Endure The Stretching Trough

  • Revenue missed our full year expectation of US$348mn due to lower charter rate and lower average utilisation of existing fleet.
  • Unexpected net loss was due to higher than expected unrealised FX losses.
  • We revise upward FCFF to US$132mn in FY17e (previous US$97mn), and US$130mn in FY18e (previous US$110mn), mainly due to the reduction of CAPEX and lower CFO forecast. 
  • With unchanged WACC of 8.7%, we upgrade the rating to “Buy” with a lower DCF-derived target price of S$0.40 (previous S$0.45) given the recent sell-down, implying an upside of 29.0%.


Even Middle East facing operational challenges 

  • 2 units planned for deployment in the Middle East in Jun-17 has completed upgrades expected to but postponed due to clients’ requests. The group intended to dispose a unit that was contracted an existing client. Despite this the potential buyer of the unit faced financing difficulties. 
  • Even some players in Saudi Arab are confronting to liquidity crunch at the moment.


Double whammy may not be subsided until 3Q17 

  • The woe from upstream participants such as oilfield facilities manufacturer and operators continued in 1Q17 since the curb of output cut favoured the recovery of oil price in a limited magnitude. The failure of several large listed has created a liquidity crunch in the whole the eco-system, from equipment manufacturers to subcontractors. 
  • We expect the low day rates and utilisation rate to continue. By 2H17, the number of units under operation is expected to be 16 out of the whole fleet size of 26. 
  • The previous expectation of strengthened USD in 2017 is fading, which could result in less FX gain or even further losses that worsen the performance.


Clients postponing delivery 

  • As of Mar-17, some clients deferred the maintenance which is supposed to be scheduled. Moreover, they stretched the window of delivery for units completed maintenance. 
  • Moving forward to the rest of the year, the market will remain challenging in 2Q17.  
  • Ezion still sees a chance to recover, especially when deferring maintenance coincides with it, then the catch-up of rates may be realised. Besides, concerns on the amendments of credit policy from banks exist, because other debtors within the sector may get into trouble.


Investment actions 

  • We revise upward FCFF to US$132mn in FY17e (previous US$97mn), and US$130mn in FY18e (previous US$110mn), mainly due to the reduction of CAPEX and lower CFO forecast.
  • With unchanged WACC of 8.7%, we upgrade to the rating “Buy” with lower DCF-derived target price of S$0.40 (previous S$0.45) given the recent sell-down, implying an upside of 29.0%.




Chen Guangzhi Phillip Securities | http://www.poems.com.sg/ 2017-05-15
Phillip Securities SGX Stock Analyst Report BUY Upgrade ACCUMULATE 0.40 Down 0.450



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