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Ezion Holdings - CIMB Research 2015-12-09: Liftboats to stay afloat despite the oil tumult

Ezion Holdings - CIMB Research 2015-12-09: Liftboats to stay afloat despite the oil tumult EZION HOLDINGS LIMITED 5ME.SI 

Ezion Holdings - Liftboats to stay afloat despite the oil tumult 

  • Ezion disappointed in FY15 as it sought to keep its house in order. 
  • Reiterate secular demand for liftboats. 
  • Ezion is combating rate cuts and cancellations, but at the price of lower ROEs. 
  • Stress-testing Ezion, we found that its credit metrics are robust. 
  • We see a meaningful improvement in 2H16 with more rig deliveries. 
  • We maintain our Add call with an unchanged target price, based on 0.8x CY16 P/BV. 



■ 2015: getting its house in order 

  • Through 2015, Ezion has reported quarterly earnings which were below expectations, owing to repeated vessel delivery delays, unexpected downtime plus more demands from customers which required several rounds of upgrades. 
  • We view that 2015 is a reflection of Ezion’s rapid built-up over the past 2-3 years which saw them amass an asset-base of over US$2bn. However, this came at the cost of its foundations which may not be deep enough. 
  • We believe that Ezion would focus on righting the ship in 2015-16. 


■ Liftboats to stay afloat in the oil tumult 

  • Given the oil tumult, oil companies are more likely to focus on enhancing production, rather than exploration and development activities. Liftboats, which are a more reliable, safer and productive way to service shallow-water platforms, are best suited to meet the oil companies’ needs. More importantly, liftboats are exposed to oil companies’ opex, rather than capex which have suffered the deepest cuts. We reiterate that Ezion is the first to successfully adapt and introduce liftboats to ASEAN National Oil Companies. 


■ Not entirely insulated; also experiencing industry headwinds 

  • Although Ezion has renewed four out of the five contracts due to expire in 2015 at similar rates, some of the renewals have come at a cost as some units required upgrading. This means higher capex, earnings vacuums in the interim and lower return on assets. 
  • Plus, customers are paying more slowly. We estimate that another five contracts are up for renewal in 2016. 


■ Net gearing of 1.1x as at end-3Q15 (end-FY14: 0.9x) 

  • YTD, Ezion incurred US$340m capex and we forecast c.US$250m in FY16-17. 
  • Post- 2017, Ezion does not have any committed capex. We project a net gearing of 1x for FY15 and 0.9x for FY16. 
  • Stress-testing Ezion, we found that its credit metrics are robust. The company does not face refinancing pressure in this tough operating environment as its notes are only payable from 2018 onwards. 


■ Finding a floor to earnings: 2H to see improvement 

  • After consecutive quarterly disappointments, we think that earnings are not far off from the floor. 
  • We envision 4Q15 to be a slightly weaker quarter with US$422m net profit, but project 1Q16 to be incrementally better. 
  • We could see a meaningful improvement in 2H16 with more rig deliveries. 
  • We maintain Add on Ezion with an unchanged 0.8x CY16 P/BV-target price of S$0.95 (20% discount to justified 1x P/BV, to account for receivables or impairment risks). Positive earnings revisions are a potential catalyst.



YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.95 Same 0.95


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