Friday, 10 August 2012

Ezion Holdings

OCBC on 8 Aug 2012


Ezion Holdings (Ezion) reported a 41.2% YoY rise in revenue to US$37.2m and a 130.4% increase in net profit to US$28.1m in 2Q12. Results were in line with our expectations with core net profit increasing 22.5% YoY. The group also secured a charter contract and a letter of intent to provide two additional service rigs for multinational oil majors in the North Sea; one of them is a “super-liftboat” that Ezion is developing. Ezion has been on a roll this year after securing liftboat and service rig contracts, as well as logistics work for Australia’s buoyant LNG industry. We have tweaked our estimates to take into account the recently-announced APLNG contract as well as the 3rd service rig contract for the North Sea. As such, our fair value estimate increases from S$1.13 to S$1.20 (based on 9x blended FY12/13F core earnings). Maintain BUY.
2Q12 results in line 
Ezion Holdings (Ezion) reported a 41.2% YoY rise in revenue to US$37.2m and a 130.4% increase in net profit to US$28.1m in 2Q12. As expected, 2Q12 was boosted by a disposal gain from a liftboat; excluding that, core net profit rose 22.5% YoY. Results were in line with our expectations; 1H12 core net profit accounted for 48% of our full year estimate. Although gross profit margin of 45.9% in 2Q12 was lower than 54.0% in 2Q11, this is comparable to 1Q12’s 44.4%. We expect this to be the base level (with potential for further upside) for the next few quarters.

3rd rig for the North Sea – US$16m/yr rev
The group also announced that it has secured a charter contract and a letter of intent to provide two additional service rigs for multinational oil majors in the North Sea. The customer is likely to be Maersk, and we estimate ROE to be around 22%, comparable to Ezion’s earlier rigs for the same area.

Developing the “super-liftboat” – US$21.9m/yr rev
Ezion also shared more details on its “super-liftboat”, which is a new-generation unit that the group is developing (the letter of intent is meant for this new unit). Ezion is still finalizing the yard which will do the final assembly, and the rig is scheduled to start working by mid 2014.

Not resting on its laurels
Ezion has been on a roll this year after securing liftboat and service rig contracts, as well as logistics work for Australia’s buoyant LNG industry. It plans to stay ahead of competition by 1) developing its operating expertise by going into time charter instead of bareboat charters, and 2) constructing the next-generation liftboat. We have tweaked our estimates to take into account the recently-announced APLNG contract as well as the 3rd service rig contract for the North Sea. As such, our fair value estimate increases from S$1.13 to S$1.20 (still based on 9x blended FY12/13F core earnings). Maintain BUY

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