80~90% of proceeds for acquisition of offshore and marine assets – 80~90% of the gross proceeds, after deducting expenses, will be used for the acquisition of offshore and marine assets while the remaining 10~20% will be channeled towards general working capital. We believe the management is building up its war chest ahead of an earnings accretive project.
Gearing ratio reduced to 0.24x, comfortable financial position – In our view, the share placement exercise reduces the Group’s gearing ratio to 0.24x immediately after the share placement, from 0.65x based on 1Q09 balance sheet. If Ezion were to finance the acquisition of offshore and marine assets through bank borrowings, assuming 80% of S$43.4m gross proceeds raised, gearing ratio would have risen to 0.92x instead. At gearing ratio of 0.24x, we believe Ezion would be in a better financial position to obtain bank financing in the future.
Maintain BUY; Target price of S$0.94 – We are keeping our earnings forecast at this juncture. While earnings per share are expected to be diluted to 8.5 Sg cts as a result of the share placement, we are maintaining our target price of S$0.94, implying a forward PE of 11x FY10F EPS (previously 10x FY10F EPS), in anticipation of earnings accretive projects from the acquisition of offshore and marine assets mentioned in the share placement announcement. With an upside potential of 38%, we maintain our BUY recommendation on Ezion.
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