Ezion and Triyards extend exercise period of warrants by four months

As customers take time to finalise desired liftboat specs.

The outlook is bright for Ezion, and the company’s free cash flow (FCF) could turn positive in FY16F.

According to a report by RHB, Ezion and Triyards have mutually agreed to extend the exercise period of the Triyards warrants by another four months. This is likely caused by customers taking a longer time in the current climate to finalise their desired liftboat specifications, and this is little cause for concern. The stock, in RHB’sview, is hardly pricing in the existing contracts – much less any additional ones.

RHB adds that Ezion’s FCF was negative at -USD563m in FY12, and improved to -USD227m in FY14. Analysts think that the company will turn FCF-positive in FY16F with about USD184m available for dividends and debt repayment.

Here’s more from RHB:

With such a high level of FCF, management may find it indefensible to maintain the current token 0.1-cent DPS and could, instead, begin paying a yield comparable to that of its peers. There could be a 4.4-cent DPS assumption for FY16F, equivalent to only a 15% payout ratio and which will consume only 53% of FY16F’s FCF. In fact, given the lower capital requirements for future years and the rapidly-falling net gearing level, the possibility of a dividend hike as early as end-FY15F is not ruled out.

The stock has declined by 50% in the last 12 months, in line with the falling oil prices, but investors may have completely disregarded the fact that Ezion’s earnings are far from being directly-linked to oil prices. Fears about the environment in places like Mexico and Malaysia are overdone, and in any case, are likely already priced in.