• 1Q18 core net loss of ~US$15m was expected
• Gradual recovery from 3Q with higher utilisation
• Unusual price movement with high trading volume post trading resumption is unjustified on fundamentals
• Reiterate BUY; TP unchanged at S$0.29
BUY; TP S$ 0.29 based on 1.4x FY18 book value. Ezion’s sell-off since resumption of trading is unwarranted. We hold on to our view that Ezion is poised to re-rate from its current low valuation (which reflects insolvency), catalysed by:
i) successful refinancing exercise which provides a 6-year runway;
ii) improving utilisation and day rates driving an earnings recovery;
iii) Temasek-linked Pavilion Capital as strategic investor boosts confidence; and
iv) potential strategic partners to brighten growth prospects.
Strategic industrial partners on the way? Ezion remains in talks with strategic partners that could offer financial support or liftboat assets to tap the demand recovery. We believe potential tie-ups with prominent industry players enhances Ezion’s growth prospects, which would otherwise be constrained by its high gearing level. This serves as a catalyst for further re-rating. Where we differ. We are more hopeful on Ezion’s turnaround. While it has also been hit hard by the recent oil crisis, Ezion is among the few surviving players with a niche competitive edge in liftboats, a segment with brighter demand/supply outlook relative to other offshore support vessels.
We value Ezion based on 1.4x FY18 book value, in line with the valuation multiple ascribed to SGX-listed peer PACC Offshore (POSH) post massive impairments, arriving at a target price of S$ 0.29. Our FY18F book value has factored in ~US$1.1bn total impairments made in 2015-2017 and assumes full conversion and exercise of bondholders’ warrants.
Key Risks to Our View:
Slower recovery. Drop in oil price below US$50/bbl may hit O&G activities, and thus drag demand and day rates improvement for liftboats. This poses downside risks to our earnings forecasts.
Source : DBS Group Research