Tuesday, December 15, 2015


Ezion:(S$0.57) China's wind farm developments to provide some need up-lift?
Ezion has entered into an agreement with a Chinese SOE to support offshore wind power installation projects along coastal China.

According to the announcement, Ezion will support the SOE with its service rigs for loading, construction, transportation, and installation of wind turbine development projects. It will also provide technical expertise for the construction, and installation of the wind turbine foundation and components.

The agreement comes after Ezion mentioned that it would be looking to diversify away from the oil and gas sector in view of the industry downturn.

With the Paris climate change deal, COP21, finalised, and continued domestic support in developing renewable energy such as wind power to reduce carbon emissions, Ezion has found itself an additional avenue to deploy its service rigs.

This avenue is less subjected to price pressures and additional operational requirements that its current oil and gas customers are pressing Ezion for in this downturn, which saw Ezion recording poorer 3Q15 gross margins of 29% (-22.1 ppt y/y).

Notably, however, Ezion vessels are currently contracted to various clients. Hence, the newly inked agreement could mean that the group might:
1. use it as a backup plan in case of contract/charter terminations,
2. rescind contracts with clients who offer no long-term strategic prospects and are asking for unreasonable terms,
3. see new contract opportunities after the current ones expire.

While no specific contract or value was mentioned, Market Insight notes that China has set a target of 5GW of installed offshore wind capacity by 2015 and 30 GW by 2020. As these targets have yet to be met, more offshore wind power installation projects are expected over the next few years.

Maybank-KE opines that this development is a positive for the counter. The house has a Buy call on Ezion with a TP of $1.28.

Ezion is currently trading at 0.49x P/B and 4.87x forward P/E. The counter is an overall favourite of the street with 11 Buy and a sole Sell rating with consensus TP of $1.01.

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