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Bullish On Ezion’s Push To E&P
Tradeable, Tradeable Ideas | 09 April 2014
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By: Raymond Leung
Articles (142) Profile
  1. Ezion’s foray into the Exploration and Production (E&P) segment of the oil and gas industry is a positive.
  2. The partnership between Ezion and JK Tech is viewed as a longterm strategic investment.
  3. Ezion continues to remain as the first mover and largest player in the offshore industry in Southeast Asia.

Following the termination of its plan to a Reverse Takeover (RTO) of Ocean Sky International (Ocean Sky), Ezion Holdings (Ezion) announced its new plans for its business structure.

Swimming Upstream With JK Tech

Ezion will be moving up the supply chain by making a foray into the Exploration and Production (E&P) business of the Oil and Gas (O&G) sector.

To facilitate its entry into this new business segment, Ezion entered into an agreement with JK Tech Holdings (JK Tech) which involves placing shares of the respective companies to the other. JK Tech will be the holding company for the new E&P business.

The agreement ensures Ezion and JK Tech will each take a $3.78 million stake in each other. Ezion will purchase its stake in JK Tech at $0.09 a share (80 percent discount to its last closing price of $0.45).

On the other hand, JK Tech will purchase its stake in Ezion at $2.0445 a share (3.2 percent discount its its last closing price of $2.11).

The deal will come with an option for Ezion to subscribe to an additional 260 million shares of JK Tech at $0.09.

With the placement and options, Ezion will have effective control of JK Tech as it turns into its subsidiary company. After the transactions, Ezion will hold 64.82 percent of JK Tech’s enlarged share capital while JK Tech will hold 0.15 percent of Ezion.

Exploration and Production – The Genesis of the Oil and Gas Industry
E&P is an up and coming sector in the local market following the IPOs of several companies (KrisEnergy, AsiaPhos, Rex International and Linc Energy) late last year.

According to Barclay’s outlook, global E&P spending is set to grow about 6 percent in 2014 to US$723 billion in the fifth straight year of growth. In Asia however, growth is expected to be less, at about 2.7 percent from 2013 levels.

Source: Barclays Research

In view of the new E&P play, OCBC Research reiterated its “Buy” rating for Ezion with a potential upside of 21.8 percent.

Ample Room for Demand Growth in Asia
Aside from its foray into the E&P segment of the offshore industry, Ezion also has a rather delightful growth story in its existing liftboat or self elevating units (SEUs) segment.

Oil companies generally hire liftboats to increase cost-efficiency. This is because liftboats allows for a reduction in downtime of production wells and reliance on barges, thereby increasing productivity (cost-efficiency) of oil platforms.

Maybank Kim Eng reports that given the infancy of liftboat adoption in Asia and the Middle East, Ezion would have ample room for growth in this sector. A look at the table below shows that the ratio of coverage of liftboats to platforms is very high (1 liftboat for every 53 platforms as compared to 1 liftboat for every 13 platforms in the US). If we were to take the US as a benchmark, then it is obvious that demand for liftboats will grow as the ratios converge.

Source: Kennedy Marr, Infield Systems, Phillip Securities Research

As the first mover and largest player in Southeast Asia, the group will be able to continue to generate demand and expand its influence in the region. The increase in demand for liftboats will play nicely to the growth story of Ezion and provide an added dimension in terms of growth for the group.

With additional reporting by Simeon Ang.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

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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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