Friday, 16 January 2015

Ezion Holdings

UOBKayhian on 16 Jan 2015

FY14F PE (x): 6.5
FY15F PE (x): 5.3
Strong liftboat demand as oil companies shift from capex to opex. Ezion is seeing more
enquiries for its liftboats and service rigs as oil companies shift their focus from capex to
opex in view of lower oil prices. Instead of spending on new oilfields, oil companies are
going to focus on maintaining their oil production from existing fields. This will entail
repair and maintenance of existing production platforms. The main purposes of liftboats
and service rigs are accommodation and deck space during platform maintenance.
Investors to start differentiating stocks. Ezion is one of our top stock picks in the
Singapore oilfield services sector. The collapse in stock prices is an opportunity for
investors with a longer-term outlook. We continue to advocate a bottom-up strategy that
favours companies with: a) an experienced and dynamic management, b) a resilient
business positioned in regional shallow and mid-water depths or a cabotage market that
has high barriers to entry, c) clearly-defined company-driven growth, d) good margins to
cushion the impact of a potential industry downturn, e) cash calls that are strategic and
EPS-accretive, and f) a healthy ROE. We believe investors will return to stocks that
deliver earnings growth amid lower oil prices. Typically, these are shrewd companies
that actively capitalise on business opportunities to grow earnings amid adversities.
Maintain BUY but lower our target price of S$1.50, based on 7.0x 2015F PE. UOB Kay
Hian is forecasting an average Brent oil price of US$65/bbl for 2015 and US$70/bbl in
the longer term. Our regression analysis of past cycles suggests US$70/bbl for Brent oil,
and the 1-year forward PE of Singapore OSV-owner segment is 6.2x. Given Ezion’s
locked-in long-term vessel charters and its positioning in shallow-water production, we
value it at a higher 2016F PE of 7.0x. This translates into a target price of S$1.55. We
thus lower our target price from S$2.00 (or 9.5x 2015F PE) to S$1.55.

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