Ezion Holdings - RHB Invest 2015-12-15: Wind-Powered Growth

Ezion Holdings - RHB Invest 2015-12-15: Ezion Holdings - Wind-Powered Growth 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 | http://www.rhbinvest.com.sg/ 2015-12-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.40 Same 1.40