• In a new deal, Yinson plans to acquire 63% equity in Ezion through a share subscription exercise worth US$150m to be satisfied via US$482.3m debt capitalization and US$47m cash.
• The purchase implies an attractive 0.7x P/B, in our view, given the opportunity available to Yinson to monetise Ezion’s other noncore assets.
• Maintain BUY with an unchanged TP of RM7.70. We believe its synergy with Ezion will result in earnings growth sustainability in the long-run amidst energy transition towards renewables.

New scheme of arrangement

Yinson entered into a new share subscription to acquire 63.4% stake in Ezion to be satisfied via capitalisation of the latter’s existing loan of US$482.3m (for US$103m) and cash consideration of US$47m. The total cash outlay is US$150m. Yinson will also be able to further increase its stake to 69.9% through conversion of 8.1% convertible note worth US$20m and Ezion shares option worth US$150m.

Our thoughts on the transaction

Based on lower total purchase consideration of US$150m (from US$200m previously), the transaction implies 0.71x P/B (Table 1). We believe this is an attractive price given large impairment worth US$1.7bn has been made by Ezion since 2015. Besides that, there is still upside from the disposal of non-core asset (e.g. barges, rigs and JV investment) which the management expects to receive c.US$70-100m.

Buying the liftboats anyway, as option

This transaction is conditional upon the arrangement between Ezion and other creditors to settle the former’s debt worth US$740.9m to be satisfied by cash and Ezion’s new shares. Should this transaction failed, Yinson still has the option to purchase the liftboats from Ezion’s major secured lenders for US$498.6m.

No change to earnings forecast

At this juncture, 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 get all the liftboats working within a year. It expects Ezion to achieve annual EBITDA of US$100m and enhance its EBITDA by c.40% FY23F onwards.

Reiterate BUY with unchanged TP RM7.70

We reiterate our BUY call with an unchanged SOP-derived TP of RM7.70 (Table 3) which implies 33x FY20F PE before it drops to 22x FY21F. Given its capability in decommissioning works and offshore windfarm installation and maintenance, we believe Ezion could provide the business sustainability amidst energy transition.

Source: BIMB Securities Research - 3 Mar 2020