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Ezion Holdings - UOB Kay Hian 2016-08-30: Minimal Impact From Further Impairments At Associate

Ezion Holdings (EZI SP)  - UOB Kay Hian 2016-08-30: Minimal Impact From Further Impairments At Associate EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings (EZI SP) - Minimal Impact From Further Impairments At Associate

  • Ezion announced that differences in published full-year results from an associate saw its share of results from associates and jointly controlled entities fall by an additional US$11.7m. 
  • Fundamentally, Ezion’s situation remains challenged in the oil & gas downturn. 
  • We update our estimates and cut our valuation benchmark from 0.4x to 0.3x 2017F P/B. 
  • Maintain HOLD with a lower target price of S$0.23. Entry price: S$0.20.



WHAT’S NEW


Additional US$11.7m impairment from associate. 

  • Ezion announced that its share of results from associates and jointly controlled entities would decrease by US$11.7m in 2Q16. This is due to differences between management account and published full-year accounts for one of its associates, which we believe is 17.8%-owned Ausgroup
  • As a result, Ezion’s 2Q16 net profit will fall by 59% from US$19.8m to US$8.1m, while its total equity will be reduced by 1% to US$1,276m.


STOCK IMPACT


Impairment a non-cash charge; fundamentals unchanged. 

  • As this is an accounting non-cash charge, it does not affect Ezion’s operational cash flows. 
  • Fundamentally, Ezion’s outlook remains unchanged with continued difficulty in fully deploying its service rigs in the face of the current downturn.

Total equity reduced by 1%; 2Q16 net gearing creeps up to 1.21x. 

  • The 1% reduction in total equity from the impairment has a negligible impact on Ezion’s net gearing ratio, which creeps up from 1.20x to 1.21x.


EARNINGS REVISION/RISK


Core earnings forecasts for 2016-18 unchanged. 

  • Our 2016 core earnings forecast of US$52m remains unchanged from this additional impairment. However, our reported earnings estimate for 2016 declines by 20% from US$65m to US$52m. 
  • Our 2017-18 earnings estimates (reported and core) remain unchanged.


VALUATION/RECOMMENDATION


Maintain HOLD and lower target price to S$0.23. 

  • Our P/B-based target price falls marginally from S$0.31 to S$0.30 if we had kept our 0.4x 2017F P/B benchmark.
  • However, the sector has traded another leg down since and is now closer to 0.3x 2017F P/B. Our revised target price thus falls to S$0.23. 
  • With earnings from future deployments in 2016 and 1H17 already priced in, we see little share price upside. 
  • Maintain HOLD. Entry price: S$0.20.




Foo Zhi Wei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-30
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 0.23 Down 0.310


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