Ezion Holdings - A set-up for a tradable rebound has formed

Traders Spectrum: Sense & Response: Ezion Holdings

Fundamental Rating: 12-mth TP: S$0.29 Recommendation: BUY
Technical recommendation: - BUY

Technical Comments
■ A set-up for a tradable rebound has formed. Place a tactical long at current level, stop loss at S$0.106 with initial upside to S$0.143.

■ Price decline stabilized and base building past 1-2 weeks

■ Daily MACD on the cusp of an upturn, 14-day RSI oversold at 23

■ Stock price ended up on 8 May despite profit warning. ​ Investors looking beyond 1Q loss on possible return to profitability in subsequent quarters

■ Possible upward retracement levels at S$0.143, S$0.168 and S$0.19. For now, we will just target S$0.143

Valuations
Our fundamental TP of S$0.29 values Ezion at 1.4x FY18 book value, in line with the valuation multiple ascribed to SGX-listed peer POSH post-massive impairments. 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.

Rationale and Risks

Rationale
■ Successful refinancing exercise provides 6-year runway with minimum repayment and interest.

■ Potential strategic partners boost prospects; utilisation and day rates are improving.

■ Temasek-linked Pavilion Capital's strategic investment a confidence booster.

Key Risks
■ Oil prices falling below US$50/bbl might hit O&G activities, and thus weigh on demand and day rate improvement prospects for liftboats. This poses downside risks to our earnings forecasts.

Worst-case Scenario: The value of shares invested may turn to zero; clients may lose all their investment capital.

Source : DBS Group Research
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