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What’s Behind Ezion Holdings’ 6.0% Dive in 2 Days?

Ezion

Ezion Holdings (SGX: 5ME) is one of the major offshore oil & gas support services providers that are listed in Singapore. It has been one of the fastest growing companies in the industry and its shares have been a massive winner over the past decade.

In fact, in just the past three years since October 2011, the share price of Ezion Holdings has appreciated from less than S$0.40 to a peak of S$2.45 in January this year.

However, it might seem that Ezion Holdings has been running out of stream lately.  Since Tuesday’s close at S$2.07, the company’s shares have slid a total of 6.0% to S$1.945 as of the time of writing (4:30pm, 10 June 2014). What might have caused this shift in investor sentiment?

Never underestimate the influence of brokerages

Just yesterday, the Business Times reported that an analyst from one of the brokerage firms covering the company had placed a price target for the company’s shares at a level a fair bit below where it closed at on Tuesday.

According to the Business Times’ article, the analyst in question raised concerns over Ezion Holdings’ aging portfolio of service rigs; the analyst had estimated that Ezion’s fleet of service rigs are on average 33 years old, which is the second oldest in the world. Meanwhile, the analyst was also worried about Ezion’s liftboats business as competition might be heating up in that space going forward.

What does it mean for Ezion

Let’s address the issue of competition first. Although there might be more headwinds for Ezion Holdings in the near future, it’s also important to understand that any company operating in an attractive field will likely be a magnet for fierce competition. Given the company’s track record of growth though, that might be an indication of Ezion Holdings’ ability to mitigate such risks.

As for Ezion Holdings’ aging fleet, that might be an issue for the company due to its stretched balance sheet; as of 31 March 2014, the company had total borrowings of US$1.276 billion with cash on hand of just S$185 million. The company might encounter even larger financial risks if it takes up even more debt to replace its fleet of service rigs.

Foolish Summary

Ezion Holdings is beginning to enter the business of exploration and production of oil as a means to drive further growth. In addition, the company had also recently received an investment from Malaysian billionaire Tan Sri Quek Leng Chan’s Hong Leong Co (Malaysia) Berhad. These could all bode well for the company’s future.

But on the other hand, it remains to be seen on how the company plans to improve its balance sheet and address some of its challenges (such as its ageing fleet of service rigs). 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.