Ezion Holdings - DBS Research 2015-12-15: Diversifying Customer Base

Ezion Holdings - DBS Research 2015-12-15: Diversifying Customer Base EZION HOLDINGS LIMITED 5ME.SI 

Ezion Holdings - Diversifying Customer Base 

 Strategic partnership with a Chinese SOE 
 To ride the fast growing wind farm energy sector in China 
 Expect first charter contract by 1H16 
 Earnings bottoming out in 4Q15 

 Ezion remains our O&G top pick. 

  • We reiterate our BUY call on Ezion, TP is unchanged at S$1.00, pegged to 0.8x P/BV. 
  • Rerating catalysts stem from earnings recovery with the resumption of service rigs currently under repair/upgrades in 1H16, delivery of newbuild liftboats, and successful diversification of customer base to win new charter contracts, while minimising rate reduction pressure from O&G customers. 

 Rising acceptance of liftboats. 

  • Ezion is well positioned to benefit from the rising popularity of liftboats in this region, capitalising on its first-mover advantage. 
  • We believe service rigs are in an early growth phase, buoyed by the substitution effect to replace typical work boats/barges in this region. 
  • Ezion has taken delivery of 26 service rigs and the fleet is expected to grow to 28 units by end of 2015, and 37 units by 2016, propelling earnings CAGR of 11% in 2015-2017. 

 Prudent business model. 

  • Ezion has a prudent business model. Fleet expansion is backed by long-term charters of 3-5 years. 
  • Demand is also relatively more resilient as service rigs are exposed to the production phase in the shallow water segment. Only 10-20% of Ezion’s fleet, largely in Mexico, are deployed for developmental drilling which see relatively higher risks of cancellations amid low oil prices. 


  • We value Ezion based on 0.8x FY15 P/BV, arriving at a target price of S$1.00. This implies 81% upside potential. 

Key Risks to Our View: 

Rate reduction and contract terminations 

  • We estimate that every 1% decline in average day rates will reduce Ezion’s bottomline by 2%. We have prudently assumed a 5% rate reduction in FY16. 

Five service rigs are due for charter renewals in FY16. 

  • Besides, the Mexican contracts appear to be at risk of termination as these consist of the few units that are deployed for drilling and there have been several cancellations in that region, though there is no such indication from PEMEX thus far. 
  • Competition might be keener ahead with more new entrants attracted to the growing liftboat market.

Pei Hwa Ho DBS Vickers | http://www.dbsvickers.com/ 2015-12-15
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