UOB Kay Hian 2015-08-21: Ezion Holdings - Far From The Madding Crowd, It’s Smooth Sailing

EZION HOLDINGS LIMITED 5ME.SI

Far From The Madding Crowd, It’s Smooth Sailing

We visited Triyards’ shipyards in Vietnam this week. It is building four new liftboats for Ezion, and two other liftboats for a US$175m order placed by a customer referred by Ezion in July this year.
All units are on track. All in all, Ezion is expected to take delivery of six additional vessels in 2H15 and another six in 2016. This will increase its fleet of liftboats and service rigs to 29 vessels by end-15 and 37 by end-16 from 25 in Jun 15.
Maintain BUY. Target price: S$1.40.

We visited Triyards’ shipyards in Vietnam. Triyards is currently building four new liftboats for Ezion. It is also building two other liftboats for a US$175m order placed by a customer referred by in July.
All units are on track. There are no cancellations or delays. All in all, Ezion is expected to add six liftboats/service rigs in 2H15, and another six units in 2016. This will increase its total fleet to 29 vessels by end-15 and 37 by end-16 from 25 in Jun 15. Conquest 8 and Conquest 9 are in advanced stages of construction and on track for delivery in 4Q15 (see overleaf for photos taken during yard visit).

The current share price upheaval was due to heightened investor fears over the downturn of the global oil & gas sector, currency devaluation and Ezion’s lower-than-expected 2Q15 results.
Despite 2Q15’s setbacks, we expect Ezion to redeem itself when earnings get back on track from 4Q15 onwards. Besides an earnings rebound on a margin recovery, Ezion’s earnings will also expand as additional liftboats/service rigs become operational.

Unit switching in 2Q15 and 3Q15 and current operational delays have merely deferred earnings recognition to 2017 and beyond. Ezion’s contracts remain intact, customer demand is healthy and the visibility of its long-term revenue is intact.

We assume the operational issues in 2Q15 will spill over to 3Q15 before an earnings recovery in 4Q15. We assume a gross margin of 35% in 3Q15 (same as 2Q15’s), recovering to 46% in 4Q15, 2016 and 2017 (same as 1Q15’s).

While the whole oil services sector is awash with reported corporate losses and marginal profits for 2Q15, in our view Ezion is faring relatively well.
Our target price of S$1.40 is based on 2016F P/B of 1.01x (premised on Brent oil price at US$70/bbl).
Major shareholders Chew Thiam Keng and Hong Leong Investment are accumulating shares while Ezion has stepped up share buyback.

Nancy Wei | Foo Zhi Wei | http://research.uobkayhian.com/ UOB KH 2015-08-21

BUY Maintain BUY 1.40 Same 1.40