SINGAPORE (May 15): DBS Group Research is maintaining a “buy” on Ezion Holdings saying the stock provides a bottom-fishing opportunity.

With successful restructuring, improving outlook and strategic shareholders coming in above 20 cents, DBS says it did not expect the stock to be sold down to 0.5 times impaired book value.

Since the lifting of share trading suspension on April 17, Ezion’s shares has trended lower. given selling pressure from Prudential - M&G which was paring down its stake to below its initial 5.65% or 132 million shares.

“We surmise some stakeholders may have cashed out at a loss,” says DBS analyst Ho Pei Hwa in a Monday report, “as of May 9, approximately 44% or 813 million shares were issued from bondholders’ conversion.”

This will transfer US$100 million of debt to equity. In addition, there is also an equity injection from strategic investors as well as new shares issued for professional fees and consent fees of US$60 million in total.

Surprisingly, Ezion’s trading volume has been overwhelmingly high with more than 2.4 billion shares or 138 million shares changing hands daily since resumption of trading.

Ezion had put out a clarification on Apr 30 that the company is not aware of any development that may contribute to the unusual share price movement and drew attention to the Securities and Futures Act which prohibits market manipulation.

Regardless, Ho holds on to the view that Ezion is poised to re-rate from its current low valuation which reflects insolvency.

This should be led by successful refinancing exercise which provides a six-year runway, improving utilisation and day rates driving an earnings recovery; Temasek-linked Pavilion Capital as strategic investor boosts confidence; and potential strategic partners to brighten growth prospects.

“We believe potential tie-ups with prominent industry players enhances Ezion’s growth prospects, which would otherwise be constrained by its high gearing level. This serves as a catalyst for further re-rating,” says Ho.

“We value Ezion based on 1.4 tines FY18 book value, in line with the valuation multiple ascribed to SGX-listed peer PACC Offshore (POSH) post massive impairments, arriving at a target price of $0.29,” says Ho.

Our FY18F book value has factored in ~US$1.1bn total impairments made in 2015-2017 and assumes full conversion and exercise of bondholders’ warrants

As at 1.22pm, shares in Ezion are trading 0.2 cent lower at 11 cents.

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