Ezion outlook cut by UOB KayHian, saying recovery will be slow

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UOB KayHian cut its outlook for Ezion, saying that despite indications earnings are on the mend, recovery will be slow.

“2018 is likely to be a transition year as one-off re-activation/mobilisation costs are incurred to redeploy vessels back to work,” it said in a note on Wednesday. “The earnings recovery will be protracted and share price upside will be capped by the overhang from the remaining
55 percent of bondholders who have yet to convert (and sell).”

The brokerage noted that Ezion recorded a core operating profit of US$3 million to US$4 million after excluding a series of one-offs, such as mobilisation costs and forex losses, which resulted in headline operating losses.

Looking ahead, UOB KayHian estimated upfront costs of reactivation and mobilisation would exceed US$20 million.

It cut its 2018-20 earnings forecasts by 5-11 percent and slashed its target price to S$0.12 from S$0.18, tipping an entry price of S$0.105.

“Ezion is now on a more sustainable capital structure and is likely to recover over time,” it said, but added, “Higher earnings will likely see dilution from conversions. This is a drawn out recovery and we see little upside in the near-term.”

It kept a Hold call.

The stock ended Wednesday up 5.22 percent at S$0.121.