• Yinson plans to acquire 70% equity in Ezion, a liftboat operator, through a US$916m debt recapitalization exercise to be satisfied by US$200m in cash and a portion of equity stake in Ezion.

• The purchase implies an attractive 0.6x P/B, in our view, given the opportunity availed to Yinson to monetise Ezion’s other noncore assets.

• We think the purchase could enable cross-selling of services and access into new markets such as China and Middle East where Ezion is already present.

• Maintain BUY with an unchanged TP of RM5.10.

Acquiring controlling stake in Ezion Holding Ltd (Ezion)

Yinson entered into a conditional debt conversion agreement with Ezion Holding to acquire at least 70% stake via recapitalization of the latter’s existing loan of US$916m. The purchase would be satisfied by US$200m cash and a portion of equity stake in Ezion. The agreement also allows Yinson to inject c.S$203.3m into Ezion within 5 years.

Our thoughts on the transaction

Post transaction, Yinson expects to have at least 51% equity in Ezion, implying 0.6x P/B (Table 1). We believe this is an attractive price as it also provides room for Ezion’s non-core asset (such as jack-up rigs and investment in JVs) to be monetised while strengthening Ezion’s niche business of liftboat operations. We see limited downside risk as the transaction would enhance Ezion’s balance sheet with the reduction in the latter’s gross gearing to 0.74x (Table 2).

Rationale of the transaction

The acquisition offers Yinson the opportunity to venture into liftboat operation business and consolidate its OSV segment under Ezion as well as diversify into the renewable energy segment. The liftboat operation offers cost-effective solution for offshore activities such as platform operation and maintenance in oil and gas sector as well as installation and maintenance of offshore windfarm structures.

No change to earnings forecast

Our forecast excludes contribution from Ezion pending completion of the deal. In FY18, Ezion posted EBITDA of US$46m on the back of low liftboat utilisation of c.50%, limited by insufficient working capital. Yinson plans to increase the utilisation and expects Ezion to achieve EBITDA of US$100m and enhance Yinson's EBITDA by 50%.

Maintain BUY with unchanged TP of RM5.10

We maintain our BUY recommendation with unchanged TP of RM5.10. We think this could benefit Yinson through cross-selling of services as well as access new markets such as China and the Middle East in which Ezion is already present.

Source: BIMB Securities Research - 3 Apr 2019