■ Post-restructuring, book value starts at 12.4 S cents without conversions. The likelihood of conversions by warrant holders and security holders is uncertain as they are currently out of the money, with the exercise price at a premium to book value. Without conversions, Ezion Holdings’ (Ezion) fully-diluted book value of 21 S cents is unlikely to be realised, and current book value post-restructuring is closer to 12.4 S cents.
■ No more than 1.0x 1-year forward P/B valuation. Peers that have emerged from bankruptcy are trading at close to 1.0x P/B. Local peer Marco Polo Marine, which has no debt left, is trading at 1.1-1.2x NTA. While Ezion should turn profitable, this is weighed against its excessive net gearing of 785% relative to peer average of 124%. The current 26% premium to book is unwarranted, and a fair valuation should not exceed 1.0x 1-year forward P/B, in our view.
■ Restructuring buys six years of time. Post-restructuring, Ezion has six years’ time to generate sufficient cash flow to partly repay banks and security holders. Reduced interest expense and minimal debt repayment should facilitate this. We estimate that current debt of US$1.5b can be reduced by 35% at the end of six years without conversions.
■ Balance sheet improving, but equity shareholders take a backseat. With the impairments, Ezion’s service rig fleet is now profitable at the gross level. With this and the reduced interest expense, a return to profitability is expected. Balance sheet is expected to improve, but until Ezion’s debts are settled, little to no cash flow will be attributable to shareholders.
■ Ezion will resume trading on 17 Apr 18, at 9am. (Read Report)
Source : UOB Kay Hian Research