Broker's take: DBS downgrades Ezion to 'hold' with clearer signs of turnaround needed for rerate

Published Thu, Feb 7, 2019 · 07:32 AM
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DBS analyst Ho Pei Hwa has downgraded her call on Ezion Holdings and lowered the target price for the liftboat-focused company's stock. DBS Group Research now has a "hold" call with a target price of six Singapore cents, from 14 Singapore cents previously.

Ezion Holdings on Monday said it expects to post a net loss for Q4 and fiscal 2018 on the uncertainty of whether its joint ventures can repay shareholder loans. The offshore and marine firm also expects a significant decrease in its net asset value due to a review in the fair value of its vessels.

Ms Ho said the downgrade of Ezion was due to potential asset impairments, a slower-than-expected ramp up in utilisation, and revenue.

But noting that it is "darkest before dawn", the brokerage remains hopeful despite Ezion's turnaround taking longer than expected. That said, clearer signs of a turnaround need to be seen for the liftboat operator to be rerated.

DBS acknowledged in its report that Ezion's July 2018 joint venture with TSC Group is key to longer-term growth prospects.

"We believe such tie-ups with prominent industry players enhance Ezion's growth prospects, which would otherwise be constrained by its high gearing level," Ms Ho said.

"While it has also been hit hard by the recent oil crisis, Ezion is among the few surviving players with a niche competitive edge in liftboats, a segment with better demand/supply outlook relative to other offshore support vessels."

Key risks to the brokerage's view include a slower recovery by Ezion and oil prices falling below US$50 per barrel. The occurrence of the latter can have a negative effect on oil and gas (O&G) activities. Lower oil prices may lower demand and result in downward pressure on day rates for liftboats. 

"This poses downside risk to our earnings forecasts," Ms Ho said.

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