Ezion Holdings - Maybank Kim Eng 2016-03-01: Navigating Through Tough Times

Ezion Holdings - Maybank Kim Eng 2016-03-01: Navigating Through Tough Times EZION HOLDINGS LIMITED 5ME.SI 

Ezion Holdings (EZI SP) - Navigating Through Tough Times 

Dragged by impairments. 

  • Maintain BUY FY15 PATMI of USD36.8m (-84% YoY) was dragged by 
    1. USD81.1m of impairments in 4Q15 and 
    2. USD3.0m of associate loss in 4Q15 due to AUD45m of impairment by 18%-owned Ausgroup. 
  • Without these, core PATMI (after perps) would have been c.USD105.9m (-41% YoY), 92%/95% of our/consensus’ FY15E, still a slight miss. 
  • Ezion said that rate reduction pressures are mounting, but we still expect its assets to be highly utilised. 
  • Cut FY16-17E by 35-60% as we factor in deferred deliveries for six units and a 10% across-the-board rate cuts. 
  • Maintain BUY, TP cut from SGD1.28 to SGD0.80, now pegged to 0.7x FY16E P/BV, based on GGM. 

Kitchen sinking USD81.1m 

  • The USD81.1m impairment was arrived at after assessing all its assets and receivables. 
  • We believe that this is a kitchen-sinking exercise and no further provision should be required in FY16 unless there is further deterioration in oil price towards the USD20/bbl levels. 

Sound strategies to navigate downturn 

  • Ezion has outlined several strategies: 
    1. JV with China SOEs to deploy its units for offshore windfarm installation, 
    2. converting some units into MOPUs to service marginal oil fields, 
    3. working with Chinese SOE shipyards to jointly market and operate liftboats - this could help Ezion secure contracts without incurring capex and 
    4. deferring capex for six units for up to 12 months, significantly reducing FY16 capex by more than half. 
  • Consequently, it expects only 24 or 25 units to be operating by 2016, 35 by 2017 and all 37 by 2018. This was the main reason behind our EPS cuts. 
  • Previously, all 37 were expected to be working by end-2016. 

Gearing a concern but capex deferment helps 

  • Net gearing of 1.1x at end-FY15 was our key concern, but Ezion said that banks have pledged their support as rigs’ income are assigned to them. 
  • The capex deferment will also help to ease balance sheet stress and boost FCF. 
  • We continue to believe that Ezion’s relative resilience makes it well-placed to survive the downturn. 
  • Maintain BUY but TP cut from SGD1.28 to SGD0.80 as we lower P/BV from 1.0x to 0.7x. 
  • We have raised CoE in our GGM model (ROE 10%, CoE 15%) to reflect the higher risks. 

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-03-01
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.80 Down 1.28