Ezion Holdings (Ezion) has secured a charter contract worth US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China (likely China Datang). Estimated ROE is attractive at about 55-60%, but there are certain risks in this project, such as yard execution risk since the unit will be built in a Chinese yard. China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of offshore wind turbines. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle, reducing our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY.
Secures US$65.7m liftboat contract
Ezion Holdings (Ezion) has secured a charter contract worth about US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China. The unit is on bareboat charter, and it will contribute US$16.4m in revenue and about US$9.4m in net profit per year. Total project cost is around US$72m with a 77%-23% debt-equity split. Estimated ROE is attractive at about 55-60%, but there are certain risks in this project as well.
Yard execution risk
We understand that the unit will be built in a Chinese yard, which is not surprising since the customer is a state-linked entity and the unit will be used to support energy generation in China. Depending on the yard chosen, there would be varying degrees of execution risk since Chinese yards have little track record in building liftboats. Should there be a delay in delivery, the compensation obtained from the yard may or may not be sufficient to cover Ezion’s penalty towards the customer of the charter contract.
Entering China’s offshore wind industry
China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of wind turbines at an offshore wind farm. From our understanding, the top five power companies in China are China Huaneng, China Guodian, China Datang, China Huadian and China Power Investment Corp; we think the customer is likely to be China Datang. The liftboat is expected to work in the Yellow Sea in 3Q13 upon completion, and this project is expected to have a positive material impact on the group’s earnings in FY13. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle. This reduces our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY.
Ezion Holdings (Ezion) has secured a charter contract worth about US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China. The unit is on bareboat charter, and it will contribute US$16.4m in revenue and about US$9.4m in net profit per year. Total project cost is around US$72m with a 77%-23% debt-equity split. Estimated ROE is attractive at about 55-60%, but there are certain risks in this project as well.
Yard execution risk
We understand that the unit will be built in a Chinese yard, which is not surprising since the customer is a state-linked entity and the unit will be used to support energy generation in China. Depending on the yard chosen, there would be varying degrees of execution risk since Chinese yards have little track record in building liftboats. Should there be a delay in delivery, the compensation obtained from the yard may or may not be sufficient to cover Ezion’s penalty towards the customer of the charter contract.
Entering China’s offshore wind industry
China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of wind turbines at an offshore wind farm. From our understanding, the top five power companies in China are China Huaneng, China Guodian, China Datang, China Huadian and China Power Investment Corp; we think the customer is likely to be China Datang. The liftboat is expected to work in the Yellow Sea in 3Q13 upon completion, and this project is expected to have a positive material impact on the group’s earnings in FY13. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle. This reduces our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY.
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