• Reiterate BUY, MYR8.22 TP offers 15% upside and c.1% FY20F (Jan) yield. We remain long-term positive on the Ezion acquisition, which comes cheaper, benefiting from renewable energy diversification. That said, near-term earnings volatility will depend on how soon Yinson is able to turn Ezion around. Yinson remains our Top Pick, with the possibility of sealing two mega projects by 2020.
   
• New terms to acquire Ezion. Previous proposals (announced in Mar 2019) to acquire Ezion Holdings have lapsed, due to conditions being unfulfilled by the stipulated deadline. Last Friday, Yinson proposed to acquire 63.4% of Ezion with a cash outlay of USD150m, where USD103m will be used to assume USD482m of Ezion’s debt, to be converted into 21bn shares at SGD0.0317 per unit. The remaining USD47m will be to partially settle debts of USD740.9m. Yinson can also opt to subscribe 5.9bn shares at a SGD0.0349 issue price (worth up to USD150m) – not exercisable within the next five years – and will further subscribe the USD20m convertible note issued by Ezion. This will eventually raise Yinson’s holdings to 69.9%, if both options and convertible notes are exercised/converted. A USD20m deposit will be paid to demonstrate Yinson’s commitment. The proposals are targeted to be completed by 4Q20, subject to relevant approvals with respective timelines – SGX approval (August), Ezion’s EGM (August) and Yinson’s EGM (September). Yinson has yet to finalise the funding structure, but we believe part of it could be funded by borrowings and potential equity fund-raising of MYR1bn, as mentioned during its latest analyst briefing.
   
• Rationale and Ezion’s latest update. The proposed USD150m investment translates into SGD0.01/share in Ezion, which is 18% cheaper than the earlier proposal in Mar 2019, with lesser debt associated. The acquisition price implies FY18 14.5x EV/EBITDA, which is comparable to Yinson’s 13.9x FY19 EV/EBITDA. The valuation appears to be more expensive at 22.8x if 9M19 EBITDA of USD21m is annualised. As of end Feb 2020, Ezion currently owns 12 liftboats, 13 rigs, and 35 other vessels. It incurred USD344-448m losses in 2018/9M19 and taken USD1.8bn losses in the past five years. The rationale is to acquire liftboats, which gives access to the windfarm installation business, and eventually the renewable energy sector via windfarm asset ownership in the longer run. In the meantime, more potential is seen in Malaysia and Vietnam from rising decommissioning works.

• We are keeping our earnings estimate pending management’s guidance. While Ezion’s acquisition will pave the way for diversification into renewable energy to reduce oil reliance at the low entry level (EV of USD53m/liftboat with relatively young age profile (7-years old) excluding other rigs and vessels vs new liftboat cost at USD65-80m), we expect bottomline volatility subsequent to the consolidation of Ezion. This is because it may incur more opex to redeploy the vessels before reaching optimal utilisation. Risks are contract terminations and being unable to secure new jobs.
   

Source: RHB Securities Research - 3 Mar 2022