Friday, 11 April 2014

Ezion Holdings

Kim Eng on 10 Apr 2014
  • Maintain BUY and TP of SGD2.90, pegged to 13x FY14E P/E following equity entry into AusGroup. 
  • Ezion to take 6.9% stake in AusGroup and enter MOU with the latter for collaboration in Australia.
  • A synergistic and mutually beneficial arrangement that could create more opportunities for both parties in Australia.
What’s New
Ezion took a 6.9% (39.9m shares at SGD0.355/sh) stake in AusGroup and subsequently entered into an MOU with the latter to explore opportunities for collaboration in Australia. Ezion would also acquire 110m share options, which when fully exercised (ex. price of SGD0.3675) could lift its stake in AusGroup to 18.9%. In totality, Ezion may need to fork out SGD54.6m (6.8% of FY13 equity) and will nominate two new directors to AusGroup’s board.

What’s Our View
We see strong mutual benefits in the potential collaboration due to the synergies between the businesses of both parties. AusGroup fabricates modules and structures for the oil and gas and resources sector, while Ezion provides offshore logistic support services for oil and gas projects in Australia. AusGroup saw a sequential turnaround in 2QFY6/14 net profit to AUD2.3m (from a AUD15.2m loss). With Ezion currently developing Port Melville in Northern Territory of Australia, we believe that the port could be used as a logistic base to support AusGroup’s future projects.

In our view, there is an inherent longer term strategy, especially in the development of Port Melville. With Ezion now the single largest shareholder of AusGroup, the latter could be roped in to help develop the port, so that Ezion could concentrate on growing its core liftboat business. AusGroup’s announcement states that it is looking to raise SGD25.7m through placement of 70m new shares to expand into onshore and offshore marine logistic services and related support services in Australia.

We continue to like Ezion for its lucrative liftboat business. The potential from its Australia business could serve as a long term catalyst. Maintain BUY, TP SGD2.90 pegged to 13x FY14E P/E.

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