Ezion Holdings - RHB Invest 2015-11-13: Trying Tough Trough Times

Ezion Holdings - RHB Invest 2015-11-13: Trying Tough Trough Times EZION HOLDINGS LIMITED 5ME.SI 

Ezion Holdings (EZI SP) - Trying Tough Trough Times 

  • Ezion reported weak 3Q15 PATMI of USD30.3m as its vessel downtime increased, compounded by higher repair and crew costs. 
  • Maintain BUY with a lower SGD1.40 TP (from SGD1.60, 107% upside). 
  • 18 of its 26 vessels were working at end-3Q15, and Ezion expects a net increase of three working units by end-FY15. 
  • The operating environment is still difficult, but we believe the 40% discount to book value is unjustified, given that the company could still deliver 11% ROE in a trough year. 

 Fleet status update. 

  • Ezion currently has 26 units in its fleet, of which 18 were working as of end-3Q15. Of the eight units in the dry dock, three will return to work in 4Q15, while two newbuild liftboats will be delivered into the fleet. However, two more units will be coming off-hire in 4Q15 – this implies a net gain of three working units in 4Q15. 
  • Based on available vessel days, the 3Q15 utilisation rate was only at 60%. We expect this to be near the trough, and the rate should rebound next year. 

 Fallout from AMS incident will be felt next year. 

  • The three units that were not properly maintained by Atlantic Marine Services (AMS), Ezion’s partner in the North Sea, are being drydocked for repairs and will be out of action for nearly half a year. This could decrease its utilisation rate by 4-5% in FY16, based on a fleet growing to 37 vessels from 28 vessels. 

 Maersk wants one more unit while customers remain demanding. 

  • Maersk had already substituted its original liftboat order with a larger newbuild from Ezion, which allowed the previous unit to fulfill another of the latter’s contracts. However, Maersk now wants the old unit back for additional field operations. This presents Ezion with a (high-quality) problem of not having enough liftboats on hand. 
  • However, like every other customer, Maersk is asking for specification improvements that require capex while still trying to hold rates down. The operating environment has not gotten any easier. 

 40% discount to book unjustified. 

  • With the additional repair time required for the AMS units, we cut our FY15F/FY16F EPS by 12%/14%. We also cut our FY17F EPS by 12%, to be conservative. 
  • Still, we believe the 40% discount to book is unjustified – Ezion should still deliver 11% ROE in this tough year (which is shaping up to be an earnings trough), which justifies a share price at book value. 
  • Our TP is based on 8x (from 9x) FY15F/FY16F P/E, implying 7.2x FY16F P/E and 1.17x FY16F P/BV.

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2015-11-13
RHB Research SGX Stock Analyst Report BUY Maintain BUY 1.40 Down 1.60