Ezion Holdings (EZI SP) - Maybank Kim Eng 2016-11-17: Lays Ground for Possible Upside

Ezion Holdings (EZI SP) - Maybank Kim Eng 2016-11-17: Lays Ground for Possible Upside EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings (EZI SP) - Lays Ground for Possible Upside

Long-term positive from buying Swissco rigs, BUY 

  • Swissco (SWCH SP, Not Rated) could file for judicial management as its proposed bond restructuring did not garner the support of bankers. 
  • Ezion has three drilling rigs and an accommodation rig under 50% JVs with Swissco. According to Swissco, Ezion offered to buy its share of the three drilling rigs for SGD4.5m and assume all outstanding debts. Ezion would not comment much as these are still under negotiation. 
  • In our view, this may seem negative from the perspective of additional debt and cashflow, but we think it could lay the ground for upside from potential cash collections and better future profitability. 
  • Maintain BUY and TP of SGD0.42 pegged to GGM-based 0.5x FY17E P/BV (ROE 8.5%, COE 18%).

Ezion would be getting rigs at depressed value 

  • Based on our calculations, the book value of the Swissco assets could be about USD91m. 
  • Ezion is getting the Swissco assets at a very depressed value. This could set the stage for better overall margins from these assets in the future.

May also help Ezion get payments from Pemex 

  • Additionally, Ezion has been contemplating supplying an additional rig to Pemex to get priority payments from them. If Ezion takes full control of the JV rigs, it may add another bargaining chip for Ezion to get Pemex to pay up, assuming the latter needs those rigs to continue production. 
  • As Swissco has given up its receivables entitlement, Ezion could potentially get what was originally due to Swissco. We estimate this at about USD31m, which can cover the bulk of the debt assumed. And the assets could continue to generate cashflows under charter. On a 100% basis, Ezion could look to collect up to USD62m (USD31m x 2) in cash if it succeeds in getting Pemex to pay up.

Possible catalysts 

  • We think this development could set the stage for upside earnings and cashflow surprises when business conditions improve. 
  • We also see other possibilities in how the development would play out, such as purchasing the assets at a lower price or getting other partners to help finance the purchase. 
  • Downside risks would be contract cancellations and a payment default by Pemex.

Swing Factors


  • Contributions from 22-23 liftboat units by end-FY16 and 27-28 by end-FY17 could lift revenue significantly.
  • Diversification into windfarm segment could open up new long-term opportunities and reduce reliance on oil and gas customers.
  • Successful restructuring of bank debts could significantly improve cashflows and eliminate refinancing needs for next three years.


  • Six service rigs operating in Mexico face risk of cancellation. Clients have been slow in payment.
  • Banks withdraw financing support leading to defaults in bonds and debts.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-11-17
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.420 Same 0.420