Company Overview

Ezion Holdings Ltd offers provision of offshore marine logistics and support services, and provides development, ownership, and chartering of strategic offshore assets.

• Acquires stake in Ocean Sky for S$47.52mn
• Injection of marine supply base into Ocean Sky
• Maintain Accumulate

What is the news? How do we view this?

Ezion announced the acquisition of 45.15% stake in engineering services provider Ocean Sky International Limited (Ocean Sky) for S$47.52mn. The acquisition will be made through the subscription of 440mn new shares at S$0.108/share (or 75% discount to its last closing on 24 Sep) in Ocean Sky. Ezion will be funding the acquisition via issuance of 20.213mn new Ezion shares at S$2.351/share (or 0.8% discount to its last closing on 24 Sep). This, in turn, will have ~2.1% dilution impact on its business. Ezion will be required to make a general offer for Ocean Sky, but it does not intend to apply for waiver.

In addition, Ezion has an option to subscribe up to 165mn new shares at S$0.108, bringing its stake to 53.1% of the expanded share capital of Ocean Sky. That said, we understand that management will maintain its stake below 50% (associate level) by placing out excess offered shares, so as not to affect its balance sheet.

On completion of the deal, Ezion will inject its marine supply base business (in particular, its Melville Island marine supply base in the Northern Territory of Australia) into Ocean Sky. Current COO Captain Larry Glenn Johnson will also be re-designated as the new CEO cum ED of Ocean Sky, though Captain Johnson will remain as ED of Ezion while Deputy COO Mr Lee Kong Meng Peter will succeed as new COO of Ezion. Management has highlighted Ocean Sky will be focused on providing services to support the field development and export of resources in Australia. We view this deal as a sensible and a positive move for Ezion as this will enable it to focus its resources on the expansion of its existing (SEU and Offshore logistics vessels) businesses.

Investment Actions?

Given the enormous demand for vital marine supply base facilities stemming from new major projects in Australia (such as Browse FLNG, and Bonaparte FLNG) as well as the increased focus for export of resources under the new Australia government, we think this will benefit both Ezion and Ocean Sky in the long run. We are keeping our EPS estimates intact. Our SOTP based fair value of S$2.71 presents upside of 23%. Maintain Accumulate.

Source: PhillipCapital Research - 1 Oct 2013