Ezion was sued by Atlantic Marine Services BV (AMS) last month, through whom it bareboat-chartered liftboats to Maersk Oil. Last week, AMS said it has withdrawn the lawsuit, eliminating a key overhang on Ezion's stock price, which fell from S$1.54 to a recent low of S$1.02.

Below is an excerpt from a report by DBS Vickers analyst Ho Pei Hwa on the stock.

» AMS withdrawal of law suit eliminates stock overhang

» Rising liftboat demand drives growth

» Resilient in low oil price environment

» Reiterate BUY; TP S$1.50 based on 8X FY2015 PE

Ezion Teras ConquestEzion's self-propelled liftboat - Teras Conquest. Photo: CompanyAMS’ withdrawal of lawsuit eliminates a key overhang

We reiterate our conviction BUY on Ezion as we believe its stock price would soon recover to the S$1.20 level, prior to the emergence of a dispute with rig-operator partner Atlantic Marine Services (AMS), following AMS’s withdrawal of its lawsuit against Ezion.

It is a win-win situation that both companies are now looking to continue the partnership in the North Sea after a change in AMS’ management.

Rising liftboat demand drives growth

Ezion is well-positioned to benefit from the rising popularity of liftboats in this region, capitalising on its first-mover advantage.

We believe service rigs are in an early growth phase, buoyed by the substitution effect to replace typical work boats/barges in this region.

Ezion has taken delivery of 22 service rigs and the fleet is expected to grow to 33 units by end of 2015, and 37 units by 2016, propelling earnings CAGR of 26% in 2015-2017.

Resilient in low oil price environment

Ezion has a prudent business model. Fleet expansion is backed by long-term charters of 3-5 years.

Demand is also relatively more resilient as service rigs are exposed to the production phase in the shallow water segment.

Only 10-20% of Ezion’s fleet, largely in Mexico, are deployed for developmental drilling which see relatively higher risks of cancellations amid low oil prices.

Key Risk to Our View: Rate reduction and contract terminations

We estimate that every 1% decline in average day rates will reduce bottomline by 2%. We have prudently assumed a 5% rate reduction in FY16. Five service rigs are due for charter renewals in FY15-16. So far, three have been renewed at similar rates.

Besides, the Mexican contracts appear to be at risk of termination as these consist of the few units that are deployed for drilling and there have been several cancellations in that region, though there has been no such indication from its customer, the Mexican state-owned petroleum company, PEMEX, thus far.

Share Prices

Counter NameLastChange
AEM Holdings3.3900.050
Avi-Tech Electronics0.4400.005
Best World Int.1.360-
China Sunsine0.400-
CNMC GoldMine0.280-0.005
CSE Global0.440-0.005
Food Empire0.580-0.005
Golden Energy0.151-
GSS Energy0.0480.001
ISDN Holdings0.370-0.010
IX Biopharma0.240-0.005
JB Foods0.575-0.025
KSH Holdings0.310-0.005
Medtecs Intl1.150-0.030
Moya Asia0.062-0.002
Nordic Group0.2200.010
Oxley Holdings0.210-
REX International0.134-0.006
Sri Trang Agro1.5100.010
Straco Corp.0.495-
Sunningdale Tech1.550-0.070
Sunpower Group0.6000.015
The Trendlines0.083-0.001
UG Healthcare0.905-0.015
Uni-Asia Group0.400-
Yangzijiang Shipbldg0.920-

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 664 guests and one member online

  • admin2