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