Ezion Holdings

DBS Group Research on 4 April 2012

EZION has secured a four-year charter contract worth US$80 million to provide a service rig (converted from an old jack-up) for the fourth largest national oil major operating in the Gulf of Mexico. The service rig, which is the second of the group to be deployed in the Sonda de Campeche field, is expected to be working by Q4 2012 after its refurbishment and upgrading. This is Ezion's fifth contract win in FY12, bringing its YTD contract wins to an impressive US$437.5 million.

Total capital expenditure (capex) of the vessel is expected to be US$55 million, of which 70 per cent will be debt-funded. Ezion's capex will increase to US$347 million for FY12, bringing its projected net gearing (post-placement) to 0.77 times as at the end of FY12. Notwithstanding, we are positive on this development as it enhances Ezion's visible and long-term earnings stream - we estimate this vessel will add about US$5.5 million per year to the bottom line in FY13-16. With an ROE of about 30 per cent, payback period would be around 3.3 years.

With the contract to contribute from Q1 FY13 onwards, we keep FY12 earnings estimate intact but raise FY13 earnings estimate by 5.7 per cent. Our TP is lifted to S$1.29, pegged to an unchanged 11 times blended FY12/13 PE. Maintain 'buy' for Ezion's solid earnings growth profile (FY11-13 earnings CAGR of 43 per cent), high earnings visibility, good execution track record, and undemanding valuations of 10.6 times/7 times FY12/13 PEs.
BUY