EZION HOLDINGS LIMITED
5ME.SI
Ezion Holdings (EZI SP) - Wind-Powered Growth
- Ezion announced that it has entered into a strategic cooperation agreement with a Chinese state-owned enterprise to support wind power installation projects in China.
- This opens up another avenue of growth for the company, whose assets and management skills are well-suited for wind-farm installation projects.
- The stock currently trades at 0.4x FY16F P/B, which implies negative long-term growth.
- Maintain BUY with SGD1.40 TP. Ezion remains a Top Pick in this sector.
New market, new opportunities.
- Ezion has signed a Strategic Cooperation Agreement with a state-owned enterprise (SOE), which is “part of a central enterprise power generation corporation under supervision of the State-owned Assets Supervision and Administration Commission of the State Council of China. The SOE will be responsible for the Engineering, Procurement and Construction of the entire offshore wind power project”.
- Ezion’s responsibilities include the “loading, construction, transportation and installation aspects of the wind turbine development projects”.
Government-driven wind power targets.
- Demand for wind power is supported by China’s 12th Five Year Plan which targets non-fossil energy to account for 11.4% of total energy consumption.
- China also targets 5GW of installed offshore wind capacity by 2015 and 30GW by 2020.
Agreement could lead to new contracts in 1H16.
- At 0.5x P/B, the market is pricing in long-term negative growth, or short-term financial difficulties.
- With its strong cashflows, we view the latter as being unlikely.
- We only expect one year of negative earnings growth, caused by the operational issues faced this year, and expect earnings to rebound in FY16 as its newly-delivered liftboats begin work.
- We view this agreement to be the next engine of growth for Ezion, with new contracts potentially being signed in 1H16.
Long-term investors should do well.
- Ezion’s stock is one of many casualties in the depressed oil & gas sector, where markets are pricing stocks as though oil prices will stay under USD40/bbl for the long term.
- RHB expects oil prices to rebound to USD50/bbl next year, and USD60/bbl in 2017.
- Ezion remains our Top Pick in the sector for its longterm contracts and its deep-value at < 3x FY16F P/E and 0.4x FY16F P/B.
Lee Yue Jer CFA
RHB Invest
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http://www.rhbinvest.com.sg/
2015-12-15
RHB Invest
SGX Stock
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1.40
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