Maybank Kim Eng Research 2015-07-30: Ezion Holdings - Credit worthiness affirmed. Maintain BUY.

Credit worthiness affirmed 

  • Issuance of 5-year SGD120m notes at low rate of only 3.65%. Notes backed by committed funding facility provided by DBS. 
  • Affirms credit worthiness of Ezion and the bank’s confidence it its business despite the oil and gas downcycle. 
  • Maintain BUY and TP of SGD1.55, based on 1.2x FY15 P/BV. 

What’s New 

  • Ezion is issuing SGD120m worth of 5-year notes under its SGD1.5b debt issuance programme at a rate of only 3.65%. 
  • This is the lowest rate not only among the bonds it has previously issued, but also lowest among Singapore small-mid-cap O&M companies. 
  • Furthermore, the notes are backed by a committed funding facility provided by DBS. 
  • This means that the bank cannot withdraw this facility unless Ezion breaches its covenants. 

What’s Our View 

  • In our view, Ezion’s continued access to the debt capital markets and at such low cost reflects the bank’s confidence in its business. 
  • Comparatively, Ezra Holdings had to raise SGD200m through a rights issue at 38% discount to its theoretical ex-rights price recently. 
  • The 3.65% is also substantially lower than bond yields (Figure 1) of most O&M peers and closer to that of the large caps. 
  • Ezion had USD345m of cash as at 1Q15. The new funds, together with expected improvement in operating cashflows would help strengthen its balance sheet and meet any near term debt and capex obligations. 
  • We have not factored in the new loans into our balance sheet forecast, pending further review after its 2Q15 results, which is expected on 13 Aug 15. 
  • We acknowledge the downside risks to earnings due to deployment delays and price pressure, but this would not be as severe as those of OSVs and drilling rigs given liftboats’ focus on production activities. 
  • We continue to prefer Ezion for sector exposure given its more defensive liftboat business. 
  • Stock is trading near all-time low. 
  • Depressed valuations of 0.7x P/BV unjustified. 
  • Maintain BUY and SGD1.55 TP, based on 1.2x FY15 P/BV.

(Yeak Chee Keong, CFA)

Source: http://www.maybank-ke.com.sg