Ezion Holdings: SGD2.20 BUY (TP: SGD3.18) - DMG OSK 1-Oct-13 Injecting Marine Base Business Into New Associate Ezion (EZI) has proposed to acquire a stake in Ocean Sky (OS) to be paid with 20.2m new EZI shares, while injecting its marine supply base business into OS. We are neutral on the news as near-term earnings dilution will be offset by a lighter balance sheet, thus allowing the company to expand its liftboat business more aggressively. We cut our FY13-15F EPS by 1-4%. Maintain BUY, with a lower SGD3.18 TP. The news. EZI proposed to: i) acquire 440m new shares in Ocean Sky (OS) for SGD47.52m (SGD0.108/share), to be satisfied by the issuance of 20.2m new EZI shares at SGD2.351/share, ii) acquire 165m share options for SGD1.00, exercisable into new OS shares at the strike price of SGD0.108/share, iii) inject its marine supply base business into OS by selling Ezion Offshore Logistics Hub (EOLH) for SGD100k cash. We think the price tag is fair, given our post-placement NTA estimate of SGD0.122/share for OS. For starters, OS will focus on marine supply base. EZI’s COO Captain Larry Johnson will be re-designated as the CEO of OS, while Peter Lee, who is Deputy COO, will be promoted to COO. We do not rule out that EZI could potentially shift the Australian logistics fleet into OS in the future, making EZI a pure play liftboat and service rig player. More debt headroom for liftboat capex. While the cash consideration for EOLH appears low at SGD100k, we estimate EZI will unload c.USD30m debt incurred for the development of the marine supply base into OS, easing its FY13F net gearing from 1.10x to 1.04x. In addition, future capex for the marine base will no longer be incurred under EZI’s own balance sheet, leaving EZI with more debt headroom for its core liftboat and service rig business. Maintain BUY, with lower SGD3.18 TP. We cut FY13-15F EPS by 1.2%/2.9%/4.0% to reflect the dilution and loss of earnings from the marine supply base. We trim our TP from SGD3.26 to SGD3.18, pegged to 16x blended FY13-14F fully diluted EPS. We remain positive on EZI given its strong earnings and room for EPS upgrades from new contracts.
Posted on: Wed, 02 Oct 2013 07:03:36 +0000