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ALP STOCK INVESTMENT CLUB (16 April 2016)
April 16 close: S$0.5550
Target price: S$0.75
1.) Sector: oil and gas equipment and services.
2.) Core business structure: The group main business segments include “Production and maintenance support” & “Exploration and development support”.
(a) Production and maintenance support: engaged in the owning, chartering and management of rigs and vessels involved in the production and maintenance phase of the oil and gas industry.
(b) Exploration and development support: engaged in the owning, chartering and management of rigs and vessels involved in the exploration and development phase of the oil and gas industry.
3.) Segment that generates the highest revenue: “Production and maintenance support” contributes 89% while “Exploration and development support” contributes 10.9% of the group total revenue respectively.
4.) Countries that the business operates:
5.) Challenges: The rising acceptance and growing demand for liftboats have attracted new entrants to the market. We estimate that there are c.20 new liftboats currently under construction to be delivered largely in 2017.
Rate reduction and contract terminations. Five service rigs are due for charter renewals in FY16. In terms of termination, the Mexican contracts appear to be at risk.
6.) Strengths: The Group has identified the offshore windfarm markets in both China and Europe as key potential areas that could provide additional deployment options for the Group’s Service Rigs. To date, we have entered into co-operation agreements with two major China state owned enterprises for such endeavour.
7.) Significant events: Ezion has signed a MOU with one of the top five IPPs in China to speed up the installation of offshore windfarms using lifeboats.
8.) GTI Ranking: 544
10.) Recommendation: Hold. We remain optimistic on Ezion’s ability to survive through this downturn with its solid management team, network and assets. While the O&G industry continues to be a battered industry, the potential upside for Ezion provides a margin of safety for long term investors who are able to hold their investments till oil prices recover. However, the oil price do not show a strong rebound yet, investors would still need to be cautious about Ezion outlook as Ezion’s share price might show another round of downwards correction.
COMPILED BY: Lu Jian
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.