SINGAPORE (Aug 25): Maybank is maintaining its “buy” call for Ezion Holdings, with a target price of 45 cents.

The research house is forecasting Ezion to record its first positive Free Cash Flow (FCF) in FY16. However, the research house warns that Ezion’s average yearly FCF would cover only approximately 10% of its net debt.

Regardless, Maybank analyst Yeak Chee Keong says that the company is likely to weather a downturn in a tightened credit market for FY16 and FY17, but may require refinancing of US$270 million ($365.1 million) over FY18-20.

Noting that Ezion is in the midst of restructuring its bank loans to extend the repayment tenure, Yeak adds that an extension of just three more years would eliminate the need for more refinancing.

The research house believes that withdrawing credit and seizing assets is not in the interest of banks as their inability to operate oil & gas related assets may force them into a fire sale.

“Companies that can keep the assets utilised will be able to extract more value than banks,” says Yeak.

Moreover, Yeak argues that Ezion would also be in a better position to refinance by FY18 if it adheres to its debt repayment schedule. That would reduce its net gearing to about 0.6-0.7x, placing it in a better position to refinance.

Unlike weaker oil services players whose bond yields are 23-33%, the bond market is pricing Ezion’s bonds at average of 8.4%, suggesting that cash flow is not distressed at this point.

Looking ahead, the research house believes that Ezion has a high chance of getting through the downturn if oil stays at least US$40-50/bbl.

It also expects continued demand for liftboats, noting that they offer a cost-efficient option for oil companies to service and maintain production at their offshore production platforms in this challenging environment.

As at 4.25pm, Ezion was down 2.0% at 24.5 cents.

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