Thursday 23 February 2012

Ezion Holdings

OCBC on 22 Feb 2012

Ezion Holdings (Ezion) reported a 8.7% fall in revenue to US$107.0m but a 44.6% increase in net profit to US$58.1m in FY11, accounting for 100.2% and 100.7% of our full year estimates, respectively. Ezion has also clinched its fourth service rig contract worth up to US$118m from a European-based customer, which is likely to be Total S.A. We estimate a decent ROE of 25-30% for this project. Management is optimistic about opportunities in the service rig and logistics segments, and given the amount of potential work that may come up, there is a possibility of a fund raising. Meanwhile, we roll over our valuation to 10x FY12F earnings and as such our fair value estimate rises to S$1.18 (prev. S$0.97). Maintain BUY.

FY11 results in line.Ezion Holdings (Ezion) reported a 8.7% fall in revenue to US$107.0m but a 44.6% increase in net profit to US$58.1m in FY11, accounting for 100.2% and 100.7% of our full year estimates, respectively. Revenue was lower on year due to the absence of revenue from marine services (of ad-hoc nature) and also lower on a sequential basis with lower contributions from the liftboat division. Liftboat 4, which is on charter with Pertamina, underwent modification work (~seven weeks) before being deployed in the Java Sea in Dec last year.

Secures yet another service rig contract.Ezion also announced today that it has clinched its fourth service rig contract worth up to US$118m over a three year period from a European-based multinational oil company. The rig will be deployed in the Yadana field in offshore Myanmar before the end of this year, and a quick check shows that Total S.A. and state-owned MOGE (Myanmar Oil & Gas Enterprise) entered into contract to develop the field in 1992. The cost of procurement, refurbishment and upgrade of the rig is approximately US$90m, and conversion work will start in Mar. We estimate a decent ROE of 25-30% for this project.

Fund raising in the pipeline?.
Management is optimistic about opportunities in the service rig and logistics segments. Given the amount of potential work that may come up in the near future, there is a possibility of Ezion undertaking a fund raising via avenues such as a placement. The group may also attempt a preference share issue; recall that it proposed a perpetual capital securities issue in 2H11 but nothing materialized due to market conditions. Should a fund raising occur, there may be a negative knee-jerk reaction once the trading halt is lifted, depending on the terms and conditions. Meanwhile, we roll over our valuation to 10x FY12F earnings and as such our fair value estimate rises to S$1.18 (prev. S$0.97). Maintain BUY

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