Ezion Holdings Limited: Endure the stretching trough May 15, 2017

PSR Recommendation: BUYStatus: UpgradedTarget Price: 0.40
  • Revenue missed our expectations due to weaker charter rates, lower utilization and clients postponing delivery of their vessels
  • Unexpected net loss was due to higher than expected unrealised FX losses
  • We revise upward FCFF to US$132mn in FY17e (previous US$97mn), and US$130mn in FY18e (previous US$110mn), mainly due to the reduction of CAPEX forecast. With unchanged WACC of 8.7%, we upgrade the rating to “Buy” with a lower DCF-derived target price of S$0.40 (previous S$0.45) given the recent sell-down, implying an upside of 29.0%.
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  • Even Middle East facing liquidity challenges

Ezion intended to dispose a vessel which had a contact attached to it. Despite this, the potential buyer of this vessel faced difficulties securing financing. Even Saudi Arabia is confronted by a liquidity crunch at the moment.

  • Eco-system in paralysis

The failure of several large listed has created a liquidity scare in the whole eco-system, that has resulted in equipment manufacturers and subcontractors unwilling to provide credit to their customers. We expect the low day rates and utilisation rate to persist.  By 2H17, the number of units under operation by Ezion is expected to be 16 out of the whole fleet size of 26. With the expectation of strengthening USD in 2017 fading, this could result in further FX losses.

  • Clients postponing delivery

Some upstream clients deferred their scheduled maintenance to focus on production.  We expect the market to remain challenging in 2Q17. The window for a recovery could arise as this deferred maintenance can no longer be postponed. Another concern is further tightening in credit policy by the banks as more oil and gas companies get into financial trouble.

Investment actions

We revise upward FCFF to US$132mn in FY17e (previous US$97mn), and US$130mn in FY18e (previous US$110mn), mainly due to the reduction of CAPEX and lower CFO forecast. With unchanged WACC of 8.7%, we upgrade to the rating “Buy” with lower DCF-derived target price of S$0.40 (previous S$0.45) given the recent sell-down, implying an upside of 29.0%.

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Chen Guangzhi
Investment Analyst
Phillip Securities Research Pte Ltd

Guangzhi graduated from Singapore Management University with a Master degree in Applied Finance and from South China University of Technology with a Bachelor degree in Electronic Commerce.

The current sector coverages include Energy, Utilities, and Mining sectors. He has 3 years experience in equity research in both Hong Kong and Singapore market. He is the mandarin spokesperson for Phillip Securities Research in relation to China-related projects and all mandarin seminars and client events.

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