Ezion Holdings - CIMB Research 2018-01-12: Resuscitation Attempts Ongoing

EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings - Resuscitation Attempts Ongoing

Ezion had a tumultuous 2017. After struggling operationally, it implemented a debt reform exercise, and was suspended from trading on 14 Aug 2017.
A Consent Solicitation Exercise (CSE) was completed in Nov 2017. Negotiations between Ezion and its secured bank lenders are ongoing.
Once the negotiations are concluded, an Extraordinary General Meeting (EGM) will ensue before the stock’s trading suspension is lifted.

We maintain our REDUCE call with Target Price of S$0.13 based on CY17 P/BV of 0.15x.

After reporting a core net loss in its 2Q17 results, Ezion embarked on a debt reform exercise, as it foresaw that the depressed charter rate environment and resistance from financial institutions in funding talks for new vessel deployment would cap earnings growth and put a strain on future debt repayments.
Pursuant to that, Ezion announced its trading suspension on 14 Aug 2017.

Ezion’s capital and funding action plans involve:
1. refinancing existing loans and bond maturities;
2. reducing interest expenses; and
3. securing new funding to put vessels to work to meet clients’ requirements.
Operationally it aims to focus on 100% deployment of liftboats, minimise future capex costs and streamline its fleet.

A Consent Solicitation Exercise (CSE) that defers maturities for S$575m worth of bonds/perpetual securities by 6-7 years was completed in Nov 2017. Negotiations between Ezion and its secured bank lenders are ongoing.
Ezion’s previous guidance on its refinancing proposal includes:
1. minimal fixed principal repayments for the next six years,
2. substantial reduction in interest rates;
3. possible fixed interest charges on certain loan facilities in lieu of stapled warrants; and
4. additional revolving credit facilities of up to c.US$100m.

Assuming full conversion of all bonds/perpetual securities/warrants, Ezion guided that share capital could expand to c.6.6bn shares (vs. 2.1bn currently); which we estimate could bring NAV/share to US$0.32 vs. US$0.62 now.
Management indicate the possibility of impairments in line with streamlining operations, in an indicative range of US$500m-900m (as per CSE circular). Assuming maximum impairment of US$900m, guided illustrative NAV/share could fall to US$0.193 (c.70% from original NAV/share).

As at end-2017m Ezion had 14 liftboats, 20 service rigs, 45 offshore logistics vessels in various stages of utilisation. We view its statement on “100% deployment of liftboats” as an indication that Ezion may rid itself of certain service rigs and offshore logistic vessels.

Ezion traded at a historical trough of 0.2x CY17F P/BV before it was suspended. In better times, its peak P/BV was c.2.2x in 2013-2014 and its historical 5-year mean P/BV was 1.3x.
Assuming last close and maximum impairment of US$900m; stock is trading at an implied P/BV of 0.76x.

Our REDUCE call and Target Price of S$0.13 is based on a CY17F P/BV of 0.15x (at a 75% discount to 0.6x P/BV, -1 s.d. below historical average, to account for the heightened debt risks).
We understand Ezion is in negotiations with its financial lenders now and once that is finalised, an EGM will be held before the stock is lifted from trading suspension.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-01-12

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