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Ezion Holdings - Maybank Kim Eng 2015-11-12: Still generating shareholder value

Ezion Holdings - Maybank Kim Eng 2015-11-12: Still generating shareholder value EZION HOLDINGS LIMITED 5ME.SI 

Ezion Holdings - Still generating shareholder value 

  • 3Q15 missed on lower-than-expected revenue and gross margin. PATMI bolstered by forex. Cut FY15-17 by 10-13%. 
  • Mounting operational pressure but contracts still intact with respectable utilisation. 
  • Maintain BUY, TP cut from SGD1.35 to SGD1.28, still at 1.0x FY16 P/BV. Only asset owner with ROE above cost of equity. 


What’s New 

  • 3Q15 PATMI of USD30.3m (-38.4% YoY, +4.8% QoQ) missed. 
  • 9M15 PATMI of USD100.3m (-28.3%) YoY formed 66% of both our and consensus’ FY15E. 
  • Net profit was bumped up by forex gain of USD7.5m. 
  • Operationally, 3Q15 gross margin fell to 29.0% (2Q15: 34.9%, 3Q14: 51.0%) as eight rigs were not generating income due to repairs, upgrades and dry docking. Unit 36 started working in 3Q15 while units 8 and 11 were taken out for repair in 3Q15. 
  • As a comparison, there were 18 units operating in 3Q15 at 83% utilisation vs 19 in 2Q15 at 99%. 

What’s Our View 

  • Although headline rates and contracts are intact, Ezion cites increasing pressure and operational challenges that involve switches, delays, additional repair and refurbishments all at its own expense. It is looking at ways to manage and to diversify these risks. 
  • In our view, Ezion’s liftboats help oil companies maximise production and reduce cost, which explains its better utilisation versus other asset types. Ezion should have 21 units operating by end-2015 and 37 by end- 2016. 
  • We cut FY15-17F EPS by 10-13% as we make more prudent adjustments for contract schedules and additional costs. 
  • Despite our EPS cuts, Ezion remains the only asset owner that we expect to still deliver ROE above its cost of equity (COE). We value other players (PACRA SP, POSH SP, VARD SP) at 0.4-0.5x P/BV as their ROEs are significantly below their COE. 
  • Maintain BUY with TP trimmed from SGD1.35 to SGD1.28, still at 1.0x FY16 P/BV.


Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-12
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.28 Down 1.35


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