Ezion Holdings - RHB Invest 2015-12-02: Toughing Through These Trying Trough Times

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

Ezion Holdings (EZI SP) - Toughing Through These Trying Trough Times 

  • Ezion’s FY15 earnings are likely to be weaker YoY on some operating drag from eight vessels in dry-dock out of a fleet of 26 (as at Sep 2015). 
  • The company should see net increases in fleet utilisation as these dry-docked units progressively return to work by 1H16. 
  • Nine new units are to join the fleet to begin their long-term charters through FY16. 
  • The stock trades at a 40% discount to BV, even though it would deliver a decent 11% ROE in this trough year 

 Fleet status update. 

  • As at 3Q15, Ezion has 26 liftboats, of which 18 are working and eight are dry-docked. Three of these are to resume work in 4Q15 while two new liftboats would be delivered into the fleet. However, two more units are to come off-hire in 4Q15, implying a net gain of three working units in this quarter. 
  • All the off-hired/dry-docked units should be back in service by 1H16. 
  • Ezion is also taking delivery of nine more liftboats throughout FY16, all of which have long-term charters on hand. 

 DCF analysis suggests that the stock is near worst-case assumptions. 

  • In August, we ran a DCF scenario analysis on the worst/base/best cases, yielding per share valuations of SGD0.61/SGD1.24/SGD2.31 respectively. The low end corresponds to assumptions of 70% fleet utilisation at 15% lower charter rates till the end of contracts on hand with zero extensions, whereupon the vessels are sold at a 20% discount to BV. 
  • The stock is near this level, even though charter rates remain firm and contracts have been renewed this year at original charter rates. A single 5-year extension per contract would double the value of the stock to our base case. 

 Best case scenario is actually an achievable operational target. 

  • The high valuation corresponds to what management is striving to achieve operationally – contract renewals at the same rate till end-of-asset lives and 95% utilisation rate – with a built-in layer of conservatism in assuming asset lives being equal only to the depreciation period. In reality, such platforms have been used for 5-10 years longer. 
  • We believe this is the true long-term value of the stock, even assuming zero fleet growth beyond the current contracted 37 liftboats. 

 40% discount to book unjustified. 

  • Ezion should deliver 11% ROE in this tough year (which is also an earnings trough one) and justifies a share price at BV. Our SGD1.40 TP is based on 8x FY15/FY16F P/Es, implying 7.2x FY16F P/E and 1.01x FY16F P/BV.

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02
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