SINGAPORE (Mar 11): DBS Vickers Securities is reiterating its “hold” call on Ezion Holdings with a target price of 5 cents, which is based on 10 times FY20 fully-diluted earnings after lowering FY20 earnings forecasts by 45%.

The lower estimates come on the back of slower-than-expected ramp-up in utilisation and revenue, as Ezion remained in the red over 4Q18 with core losses of about US$28 million. Its revenue for the quarter was mainly affected by a delay in redeployment due to working capital constraints and higher maintenance costs incurred.

In a Monday report, analyst Ho Pei Hwa says she nonetheless remains hopeful on the group’s turnaround as it recently suspended trading in view of advanced talks with an undisclosed potential strategic investor.

“The new investor could add value in view of Ezion’s financial constraints. A capital injection would augment its balance sheet, which has turned to a net liability after impairments in 4Q18,” says Ho.

In particular, the analyst highlights Ezion as a company that remains among the few surviving players with a niche competitive edge in liftboats – a segment that has better demand/supply outlook when compared to other offshore support vessels, in her view.

On that note, she is also positive on the group’s recent joint venture (JV) with China Merchant Group’s 52%-owned subsidiary, TSC Group, to co-operate in the ownership and operations of liftboats.

“We believe such tie-ups with prominent industry players enhance Ezion’s growth prospects, which would otherwise be constrained by its high gearing level,” comments Ho on the JV.

“While it is darkest before dawn and the stock’s valuation has been greatly discounted for the slow recovery, clearer signs of a turnaround are required to re-rate the stock. The potential white knight coming in to inject capital should augment Ezion’s balance sheet,” she adds.

Shares in Ezion last traded at 4.3 cents, or 9.8 times 2019F book value per share, before the group called for a suspension on Mar 1.