Ezion Holdings - Maybank Kim Eng 2016-05-12: Steady Ship

EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings (EZI SP) - Steady Ship

1Q16 PATMI of USD15.5m (-62% YoY, -124% QoQ) forms 20%/17% of our/consensus FY16E. We deem this in line as we are expecting a stronger 2H16 from the contribution of more liftboats.
Some USD14.6m of forex losses arising from its SGD debt were partially offset by a USD13.1m gain from the disposal of its 50% stake in Unit 6.
We lower FY16-18 PATMI by 2-9% after fine-tuning our delivery schedule.
Reflecting this and warrant adjustments, our TP dips from SGD0.80 to SGD0.72. This remains based on GGM (0.7x FY16E diluted P/BV, ROE 10%, COE 15%).
Expect catalysts from improving quarterly performance.

Ezion operated 17 units in 1Q16, down from 18 in 4Q15. This was lower than its guidance of 19-20.
Two more units contributed in 1Q16 but three went into yards for conversion and upgrades. Another three are being converted for windfarm operations, of which two should be ready by 3Q16. This should help Ezion diversify.
Its end-year fleet status should be unchanged, with 24-25 units expected to contribute by then. This should support a stronger 2H16, though it guided that 2Q16 EPS could be flat QoQ.

Net gearing is little changed at 1.1x or 1.3x adjusted for perpetual securities.
Still, we believe that Ezion has the ability to service its debt, with its EBITDA interest coverage of 5.8x. It started to generate positive FCF of USD9.3m this quarter, helped by capex deferment.
Unlike its weaker peers, banks have not pushed it to restructure debt.

Ezion expects prolonged difficult times but thinks that Southeast Asia may throw up opportunities in 1Q17 because of its underspending by oil companies. This could lead to a plunge in oil production by end-FY16.
The Middle East and India have been more willing to spend.
We continue to like Ezion’s resilience in the sector, potentially higher chances of survival and likelihood of being an early beneficiary of a sector turn.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-12

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.72 Down 0.80