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The Dabancheng wind farm in China's Xinjiang province. Photograph: Bob Sacha/Corbis |
Ezion announced that it has entered into a strategic cooperation
agreement with a Chinese state-owned enterprise to support wind power
installation projects in China. This opens up another avenue of
growth for the company, whose assets and management skills are
wellsuited for wind-farm installation projects. The stock currently
trades at 0.4x FY16F P/B, which implies negative long-term growth. Maintain BUY with SGD1.40 TP. Ezion remains a Top Pick in this sector.
■ New market, new opportunities
Ezion has signed a Strategic Cooperation Agreement with a
state-owned enterprise (SOE), which is “part of a central enterprise
power generation corporation under supervision of the State-owned Assets
Supervision and Administration Commission of the State Council of China.
The SOE will be responsible for the Engineering, Procurement and
Construction of the entire offshore wind power project”. Ezion’s
responsibilities include the “loading, construction, transportation and
installation aspects of the wind turbine development projects”.
■ Government-driven wind power targets
Demand for wind power is supported by China’s 12th Five Year
Plan which targets non-fossil energy to account for 11.4% of total
energy consumption. China also targets 5GW of installed offshore wind capacity by 2015 and 30GW by 2020.
■ Agreement could lead to new contracts in 1H16
At 0.5x P/B, the market is pricing in long-term negative growth, or short-term financial difficulties.
With its strong cashflows, we view the latter as being unlikely. We
only expect one year of negative earnings growth, caused by the
operational issues faced this year, and expect earnings to rebound in
FY16 as its newly-delivered liftboats begin work. We view this agreement
to be the next engine of growth for Ezion, with new contracts
potentially being signed in 1H16.
■ Long-term investors should do well
Ezion’s stock is one of many casualties in the depressed oil
& gas sector, where markets are pricing stocks as though oil prices
will stay under USD40/bbl for the long term. RHB expects oil prices to rebound to USD50/bbl next year, and USD60/bbl in 2017. Ezion remains our Top Pick in the sector for its longterm contracts and its deep-value at <3x FY16F P/E and 0.4x FY16F P/B. (Read Report)
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