• Still generating shareholder value
• Forecasting S$128m FY15 core net profit
• Undemanding valuations

Surviving relatively well in a tough market

Amidst low oil prices and investor flight from oil and gas related stocks, Ezion Holdings has not been immune from the negative sentiment. On a fundamental basis, however, we see that its earnings have held up quite well compared other offshore & marine peers in Singapore, due to the more resilient nature of its business.

The oil industry is aware that sustained delays or neglect in maintenance work will only impact future production, and has been most unwilling to cut back on this segment. More importantly, Ezion’s liftboats and service rigs are deemed as a cost effective solution for the industry which is still looking to cut back on costs.

18 units operational in 3Q with 83% utilisation rate

Indeed, of the group’s 18 units that were operational in 3Q15, Ezion saw an 83% utilisation rate. Looking ahead, management expects utilisation rate to be generally stable; the risk on the bottom-line would be additional requirements and modifications from customers that incur capex. By the end of this year, the group expects five additional service rigs to be added to the fleet with another two removed, resulting in a net addition of three units.

Still a key pick for sector exposure

Still, the market is tough, and clients have become more demanding in their requirements; the group continues to seek to fulfil such requests by interchanging its units among clients and through strategic modifications and upgrades. Under such circumstances, it would not be surprising to us if the group were to seek to diversify from the oil and gas industry.

For instance, Gulf Marine Services (GMS), which is a close peer, has exposure to the renewable energy sector, as some of the units carry out wind turbine transport and installation work. With the recent lower valuations for the group’s peers, we lower our P/E from 7x to 6x FY16F earnings, such that our fair value estimate drops from S$1.05 to S$0.90. Maintain BUY.

Source: OCBC Research - 4 Dec 2015