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The Mermaid And Ezion: An Offshore Focus
Tradeable, Tradeable Ideas | 08 January 2014
Related stocks:
DU4
5ME
By: Justin Harper
Articles (23) Profile

The STI seems to be stuck in a rut, posting three successive days of losses. So far there seems to be no direction for the local market with traders happy to sit on the fence until any themes start to emerge.

The maritime is right for Mermaid
Oil and gas player Mermaid Maritime is believed to be on the cusp of big things due to its long-term contracts and the emergence of a significant shareholder.

Investors were initially alerted to the stock by Mermaid’s impressive 4Q13 earnings outperformance, and interest in the stock has been high ever since.

The other catalyst was the news of a majority shareholder in the shape of the well-connected Mahagitsiri family. The family may want to unlock some of the value in the oil and gas company.

Mermaid’s management also shared with investors that it would shell up to US$450 million to procure two tender rigs and a dive support vessel, which have the potential to boost earnings.

Based on CIMB’s vessel-by-vessel analysis, most of Mermaid’s estimated FY14 earnings are in the bag, with 87 percent secured). A subsequent 52 percent of its FY15 earnings forecast are backed by its subsea order book of US$590 million.

CIMB says 2Q14 is expected to be Mermaid’s lowest quarter in FY14, making it an opportune time for investors to buy the stock.

Maybank seems to feel that the larger investment case for Mermaid is its potential evolvement into an integrated oilfield services player like Malaysia’s SapuraKencana, which the market has yet to price in. Mermaid enjoys a strong balance sheet which could lend itself to bulking up assets.

The average potential upside among brokers is 1 percent.

Making a big splash at Ezion
Ezion has started the year with a bang. It has proposed to buyback Liftboat 4, which is currently working in the West Java Sea on a two-year rolling contract. The liftboat was previously hired on a sale-and-leaseback arrangement.

Ezion will be able to lift its earnings from the unit by US$5 million per year due to the savings in lease costs.

In its second announcement, Ezion said it is buying out the other half of the stake in Kenai Offshore Ventures (KOV) from Buccaneer Energy, which is selling its non-core assets due to a change in focus.

The purchase price would include a US$12 million cash outlay (the remaining US$12 million from KOV’s cash balance) and could earn Ezion an extra US$4 million a year, according to calculations by CIMB.

CIMB also estimates that Ezion has yet to use US$150 million from the proceeds of its 2013 capital raising programme. This gives it a war chest to buy another eight rigs.

DBS Vickers believes having Indonesian-flagged vessels also sharpens Ezion’s competitive edge in Indonesia in the long run. The research house estimates that the two transactions could add 1.8 percent to both FY14 and FY15 earnings per share.

The average share price upside potential among analysts is 25 percent.

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Justin Harper is an experienced financial journalist who previously worked on the business desks of the Daily Mail, The Telegraph and Financial Times Business in London.

Please click here for more information about this author.

Mermaid Maritime Public Co  0.065 -0.001 -1.52%   
Business: Co is a provider of subsea & drilling services for the offshore O&G industry.

Insight: May-19, 1Q19 total revenue rose 25.5% primarily du... Read More
Ezion Hldgs  -- -- --   
Business: Co develops, owns, and charters offshore assets to support the offshore energy markets. [FY17 Turnover] Liftboats (49.7%), Jack-up Rigs (39.5%), Offshore Support Logistic Services (10.8%).

Insight: Aug-18, 1H18, Co returned to the black with a net ... Read More


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