1. business and industrial
2. company
3. joint venture

Company Update, 14 October 2014
Ezion Holdings (EZI SP)
Buy (Maintained)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD2,000m
Target Price:
Price:
SGD2.45
SGD1.61
Macro
Risks
Oil Prices Hold No Fear For Ezion
Growth
Value
Ezion Holdings (EZI SP)
Relative to Straits Times Index (RHS)
2.00
134
1.90
127
1.80
121
1.70
114
1.60
108
1.50
101
1.40
40
35
30
25
20
15
10
5
95
Jun-14
Feb-14
Dec-13
Aug-14
140
Apr-14
2.10
Oct-13
Vol m
Price Close



13.4m/10.7m
Cons. Upside (%)
80.7
Upside (%)
52.2
52-wk Price low/high (SGD)
1.52 - 2.03
Free float (%)
70
Share outstanding (m)
1,578
Shareholders (%)
Chew Thiam Keng
14.2
GuoLine Capital
7.6
Franklin Resources
7.0
Share Performance (%)

Sold off on oil price jitters. Ezion’s share price has underperformed the
market by 15% YTD (12% last month), with one of its biggest 1-day falls
last Friday when Brent fell below USD90/barrel (bbl). We note a
significant sell-off in oil and gas-related names in the last month,
generally in the 15-25% range for shallow-water players and ~30-45%
for deepwater plays.
Better execution on rig deliveries would ease investor concerns.
Ezion’s shares have been flat for most of the year, even though it has
delivered on earnings growth and new charter contracts. We believe a
key investor concern is the recurrence of rig delivery delays, which has
overshadowed the growth angle. Thus, we trim FY14/FY15 earnings
estimates by 7%/5% respectively to remain conservative.
Moving into time charters with 42% ROE. Ezion’s latest service rig
contract (Unit #38) was fixed at c.USD25.3m/year at a capital cost of
USD90m. We calculate the ROE on this unit at 41.6%, far superior to the
typical bareboat charter ROE of c.30%. We expect Ezion’s move into
time charters to create more shareholder value. It also presents future
valuation upside, should future contract renewals on existing assets
include a switch from the current bareboat to time charters.
Delays have limited impact on growth. As highlighted in our Shallow
Water Is The New Onshore sector note, we think investors should own
high-growth, low-P/E shallow-water plays like Nam Cheong (NCL SP,
BUY, TP: SGD0.58) and Ezion while eschewing deepwater ones like
Vard (VARD SP, NEUTRAL, TP: SGD0.80). This theme remains valid
today, with lower oil prices putting deepwater activity at risk. We believe
Ezion’s rig delay issues should not prevent it from delivering c.41%/58%
earnings growth in FY14F/FY15F, which are best-in-class growth rates
for this sector. Maintain BUY with slightly lower SGD2.45 TP (from
SGD2.50), which is based on 12x blended FY14/15F P/E.
YTD
1m
3m
6m
12m
Absolute
(13.0)
(12.3)
(3.9)
(7.6)
3.0
Forecasts and Valuations
Relative
(14.8)
(8.7)
(1.8)
(8.4)
1.6
Total turnover (USDm)
Shariah compliant
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
159
282
465
688
759
Reported net profit (USDm)
79
160
253
308
348
Recurring net profit (USDm)
65
141
198
308
348
38.4
115.0
40.8
55.5
13.0
Recurring net profit growth (%)
Lee Yue Jer, CFA +65 6232 3898
yuejer.lee@sg.oskgroup.com
Recurring EPS (USD)
0.08
0.11
0.13
0.20
0.22
0.001
0.001
0.001
0.001
0.001
Recurring P/E (x)
16.7
11.2
9.7
6.5
5.7
P/B (x)
3.65
2.14
1.68
1.33
1.08
P/CF (x)
12.6
11.0
5.7
4.8
4.2
0.1
0.1
0.1
0.1
0.1
EV/EBITDA (x)
17.4
14.0
9.6
6.3
4.7
Return on average equity (%)
21.8
27.7
26.8
22.9
20.7
Net debt to equity (%)
75.5
115.0
90.5
68.6
31.7
(4.3)
7.1
2.0
DPS (USD)
Dividend Yield (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
3
0
0
.3
0
0
While Ezion’s share price retreated 12% last month on oil price-related .
0
jitters, we maintain BUY with a SGD2.45 TP (from SGD2.50), still a 52.2% 0
upside. We reiterate that operations, backed by long-term contracts and 0
oil majors’ opex, are well-insulated from oil price fluctuations. With a
larger operational fleet today, rig delays have had a smaller impact too.
We think the market is not pricing in its 41-58% growth over FY14F-15F.
Source: Bloomberg
Avg Turnover (SGD/USD)




Source: Company data, OSK-DMG
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1
Ezion Holdings (EZI SP)
14 October 2014
Financial Exhibits
Profit & Loss (USDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
159
282
465
688
759
Cost of sales
(88)
(149)
(261)
(365)
(401)
204
323
359
Gross profit
Gen & admin expenses
Operating profit
Operating EBITDA
71
133
(14)
(14)
57
119
204
(1)
Dec-16F
(3)
320
(4)
354
74
165
291
457
512
(17)
(45)
(87)
(137)
(158)
Operating EBIT
57
119
204
320
354
Net income from investments
17
31
35
34
32
Interest income
3
5
7
7
14
Interest expense
(8)
(12)
(31)
(34)
(33)
Exceptional income - net
13
20
55
Pre-tax profit
83
163
270
Depreciation of fixed assets
Taxation
Minority interests
Profit after tax & minorities
(4)
(3)
-
0
(9)
-
-
327
368
(11)
(12)
-
-
-
261
316
356
79
160
Reported net profit
79
160
253
308
348
Recurring net profit
65
141
198
308
348
Preferred dividends
-
(8)
(8)
(8)
Source: Company data, OSK-DMG
Cash flow (USDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Operating profit
57
119
204
320
354
Depreciation & amortisation
17
45
87
137
158
Change in working capital
19
(5)
25
0
(2)
55
Other operating cash flow
Operating cash flow
Interest received
Interest paid
Dividends received
-
(2)
-
93
158
371
451
1
0
7
7
14
(7)
(13)
(31)
(34)
(33)
-
-
-
2
1
Tax paid
(2)
(2)
Cash flow from operations
86
144
Capex
(6)
(9)
510
(11)
(12)
339
413
480
(806)
(345)
(663)
(709)
Other new investments
(1)
(40)
-
-
-
Other investing cash flow
10
15
-
-
-
(654)
(734)
(806)
(345)
(1)
(1)
(2)
(2)
Cash flow from investing activities
Dividends paid
Proceeds from issue of shares
108
Increase in debt
Other financing cash flow
Cash flow from financing activities
-
(2)
87
227
-
-
572
676
315
(50)
(49)
(41)
(134)
638
628
540
(52)
(51)
Cash at beginning of period
63
135
166
238
254
Total cash generated
70
38
72
16
429
2
(6)
Forex effects
Implied cash at end of period
135
167
0
-
0
-
-
-
238
254
683
Source: Company data, OSK-DMG
See important disclosures at the end of this report
2
Ezion Holdings (EZI SP)
14 October 2014
Financial Exhibits
Balance Sheet (USDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
135
166
238
254
683
Accounts receivable
57
107
127
188
208
Other current assets
80
107
107
107
107
Total current assets
273
380
472
549
998
Total investments
132
199
234
268
300
Tangible fixed assets
794
1,464
2,183
2,390
2,232
Total cash and equivalents
Total non-current assets
925
1,663
2,417
2,658
2,532
1,198
2,043
2,889
3,208
3,530
Short-term debt
77
223
280
270
260
Accounts payable
33
69
115
170
187
Other current liabilities
47
84
84
84
84
Total current liabilities
158
376
479
524
532
Total long-term debt
475
863
1,121
1,081
1,042
12
4
4
4
4
Total non-current liabilities
487
866
1,124
1,084
1,045
Total liabilities
645
1,243
1,603
1,608
1,577
Share capital
260
346
540
540
540
Retained earnings reserve
195
357
648
962
1,316
Shareholders' equity
455
703
1,188
1,502
1,855
Minority interests
-
Total assets
Other liabilities
Other equity
Total equity
Total liabilities & equity
98
(0)
(0)
(0)
(0)
98
98
98
98
553
800
1,286
1,599
1,953
1,198
2,043
2,889
3,208
3,530
Source: Company data, OSK-DMG
Key Ratios (USD)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
48.4
77.7
64.9
47.9
10.4
Operating profit growth (%)
38.2
108.5
70.9
57.0
10.8
Net profit growth (%)
35.7
103.4
57.7
21.7
13.0
EPS growth (%)
12.4
40.5
30.0
16.6
13.0
Bv per share growth (%)
33.2
70.7
26.9
26.4
23.6
Operating margin (%)
36.0
42.3
43.8
46.5
46.7
Net profit margin (%)
49.7
56.9
54.4
44.8
45.8
Return on average assets (%)
9.5
9.9
10.3
10.1
10.3
Return on average equity (%)
21.8
27.7
26.8
22.9
20.7
Net debt to equity (%)
75.5
115.0
90.5
68.6
31.7
0.001
0.001
0.001
0.001
0.001
0.10
0.12
0.22
0.26
0.30
DPS
Recurrent cash flow per share
Source: Company data, OSK-DMG
See important disclosures at the end of this report
3
Ezion Holdings (EZI SP)
14 October 2014
SWOT Analysis
 Strong track record with national oil companies and
oil majors in the deployment of liftboats and service
rigs globally
 New players
entering the
liftboat and
service rig
business due to
potentially
lucrative returns
 Experienced in working on projects that are subject to
strict environmental protection rules
 As liftboats are
not an essential
asset, this may
dampen fullscale adoption
 Increased
awareness of
safety
requirements
for maintenance
could lead to
more liftboat
and service rig
deployment
opportunities
 Plenty of room
to grow charters
due to limited
deployment in
Asian waters
 High net gearing in balance sheet constrains its
ability to fund new projects without raising net equity
or issuing perpetual securities
 Limited chartering experience outside South-East
Asia, it has to seek third-party operators
P/E (x) vs EPS growth
P/BV (x) vs ROAE
18
45%
5
30%
16
40%
5
27%
14
35%
4
24%
12
30%
4
21%
3
18%
3
15%
2
12%
2
9%
10
25%
3%
0
0%
0
0%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG
P/B (x) (lhs)
Jan-16
1
Jan-15
5%
Jan-14
6%
2
Jan-13
1
Jan-12
10%
Jan-16
4
Jan-15
15%
Jan-14
6
Jan-13
20%
Jan-12
8
Return on average equity (rhs)
Source: Company data, OSK-DMG
Company Profile
Ezion is involved in the provision of offshore and marine logistics. It owns one of the largest liftboat fleets in the world.
See important disclosures at the end of this report
4
Ezion Holdings (EZI SP)
14 October 2014
Recommendation Chart
Sell
Trading Buy
Apr-12
2.50
3.00
3.18
2.65
3.18
3.26
3.00
2.55
2.48
2.02
2.20
2.16
1.32
1.31
1.37
1.17
1.25
1.00
0.92
1.04
1.07
1.00
0.87
0.85
0.89
na
1.02
Price Close
2.12 Recommendations & Target Price
1.92
1.72
1.52
1.32
1.12
0.92
0.72
0.52
0.32
Buy
Neutral
0.12
Oct-09
Jan-11
Take Profit
Not Rated
Aug-13
Source: OSK-DMG, Bloomberg
Date
Recommendation
2014-09-09
Buy
Target Price Price
2.50
1.86
2014-07-23
Buy
3.00
1.73
2014-07-15
Buy
3.00
1.68
2014-05-08
Buy
3.00
1.86
2014-04-17
Buy
3.00
1.89
2014-02-20
Buy
3.00
1.92
2014-01-03
Buy
3.18
1.90
2013-12-24
Buy
3.18
1.90
2013-11-08
Buy
2.65
1.73
2013-10-01
Buy
3.18
1.59
Source: OSK-DMG, Bloomberg
See important disclosures at the end of this report
5
RHB Guide to Investment Ratings
DMG & Partners Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading
Buy:
Share
may10%
exceed
over 12
themonths
next 3 months, however longer-term outlook remains uncertain
Buy:
Share
price
mayprice
exceed
over15%
the next
Neutral: Buy:
ShareShare
price price
may fall
within
the 15%
rangeover
of +/the next
12 months
Trading
may
exceed
the10%
nextover
3 months,
however
longer-term outlook remains uncertain
Take Profit:
Target
been attained.
accumulate
lower
Neutral:
Share
priceprice
may has
fall within
the rangeLook
of +/-to10%
over theatnext
12 levels
months
Sell: Share
may
fall has
by more
10% over
next 12 months
Take
Profit:price
Target
price
beenthan
attained.
Look the
to accumulate
at lower levels
Not Rated:
Stockmay
is not
regular
coverage
Sell:
Share price
fallwithin
by more
thanresearch
10% over
the next 12 months
Not Rated: Stock is not within regular research coverage
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