Ezion Holdings

Kim Eng on 10 May 2012

Good set of results, maintain BUY. Ezion reported a good set of results which were within expectations. 1Q12 revenue rose by 42% YoY to USD30.6m while net profit grew by 23% YoY to USD14.1m, after adjusting for a USD11.1m one-time gain on asset disposal last year. Charter revenue from liftboat unit 4 in the Java Sea and deployment of vessel in the Gorgon gas field contributed to the rise in revenue. Maintain BUY with target price of SGD1.35.

Stronger quarters ahead. Gross margin was lower at 44% compared to 57% last year due to lower margins from the time-charter contract for unit 4 liftboat. We expect stronger quarters ahead with deployments of additional liftboat and service-rig units from 2Q12, and the commencement of the QCLNG project in Queensland, Australia.

Clinched third major LNG contract. Ezion was also awarded with a new contract to provide logistics and support services for the development of LNG facilities on Curtis Island in Queensland, Australia. This is the company’s third major LNG contract and the second one on Curtis Island. While Ezion is in discussions to finalise the scope of the contract, terms would likely be similar to the LNG project it secured in August last year, where the contract value was for an initial USD55m over 18 months. The new project is expected to commence from 1Q13.

May take on more debt. Ezion also established a SGD500m multicurrency debt issuance programme with DBS as the issuer. Notes or perpetual securities could be issued but Ezion is likely to draw on the debt market first, if required, due to higher cost of perpetuals. Current net gearing has improved to 0.20x (from 0.35x) after its previous share placement, but gearing should increase again as Ezion would likely need more funds to continue to grow. This should not be taken as a negative sign.
Maintain BUY. We maintain our BUY recommendation with target price of SGD1.35, pegged at 0.3x PEG. Demand for liftboats and service rigs is expected to remain strong in the region.