SINGAPORE (Jan 16): OCBC Investment Research has upgraded its call on Ezion Holdings from “hold” to “buy” with a fair value estimate of 54 cents.
Although it continues to expect a challenging operating environment for energy equipment and services (E&P) investment companies, the research house is suggesting that longer-term investors “look beyond this” and instead, choose “pick up beaten-down stocks whose negatives have been mostly priced in” such as Ezion.
“As Ezion is modifying a few more of its existing service rigs and taking delivery of two or three new units by the end of 2017, managing its cashflow and gearing is imperative,” note analysts Low Pei Han and Eugene Chua in a report last Friday.
Consequently, they believe Ezion may dispose at least another existing service rig; delay or cancel a few of its past committed projects that “no longer make economic sense”; and invite potential joint venture (JV) partners to co-own its assets.
The analysts have estimated capex ranges of US$80-90 million ($114.4-$128.7 million) and US$160-180 million for Ezion in FY16 and FY17 respectively.
“Looking ahead, we expect the group to report impairments in its upcoming FY16 results from the cancellation of certain past committed projects that no longer make economic sense, as deposits paid to yards and suppliers have to be written off. These are non-cash items, and the stock’s current low valuation has largely priced in the negatives,” say Low and Chua.
“Oil prices are probably already past their worst as major oil producing countries have signalled their resolve to cut production to support prices. Though the operating environment may still be challenging for companies in the industry, we think confidence is on the up,” they conclude.
As at 11.25am, shares of Ezion are trading 1.2% lower at 42 cents.