Ezion Holdings (Ezion) announced that it has secured a charter contract worth about US$48.2m over a three year period to provide a service rig for an international oil and gas major for work in the Arabian Gulf. The unit will be deployed before end 2013 after refurbishment and upgrading in a Middle Eastern yard. We estimate a good ROE of slightly more than 55% for this project, vs a forecasted ROE of 22% for Ezion in FY13. Ezion’s stock price has appreciated by about 18% YTD vs the STI’s 3% rise over the same period. However, we still see an upside potential of more than 15% over a one-year time frame. We tweak our earnings estimates, and based on 12x blended FY13/14F core earnings, our fair value estimate rises from S$2.33 to S$2.35. Maintain BUY.
Secures US$48.2m service rig contract
Ezion Holdings (Ezion) announced that it has secured a charter contract worth about US$48.2m over a three year period to provide a service rig for an international oil and gas major (IOC) for work in the Arabian Gulf. We understand that the IOC is in collaboration with a national oil company. The unit will be deployed before end 2013 after refurbishment and upgrading in a Middle Eastern yard, and will be used primarily for accommodation purposes. We assume revenue contribution of US$16m/year from Jan 2014.
Good ROE from project
Ezion had acquired a cold-stacked rig which is more than 20 years old (estimated cost is about less than US$20m). Hence a considerable amount of refurbishment work is required, which will be done at a Middle Eastern yard. The total project cost is estimated to be about US$40m for Ezion, and will be funded by debt and internal resources under a 70-30 split. With a 5% interest cost, 10 year depreciation period and US$3-3.5m annual operating cost, we estimate a good ROE of slightly more than 55% for this project. This compares with a forecasted ROE of 22% for Ezion in FY13.
Expecting higher leverage
With Ezion’s growing balance sheet, we expect the group to pursue a higher gearing in the future for funding of additional contracts. Net gearing stood at 0.76x as at 31 Dec 2012. There is a possibility that net gearing may hit 1.0x in FY13, after which we expect it to come off.
Maintain BUY
Ezion’s stock price has appreciated by about 18% YTD vs the STI’s 3% rise over the same period. However, we still see an upside potential of more than 15% over a one-year time frame. We tweak our earnings estimates, and based on 12x blended FY13/14F core earnings, our fair value estimate rises from S$2.33 to S$2.35. Maintain BUY.
Ezion Holdings (Ezion) announced that it has secured a charter contract worth about US$48.2m over a three year period to provide a service rig for an international oil and gas major (IOC) for work in the Arabian Gulf. We understand that the IOC is in collaboration with a national oil company. The unit will be deployed before end 2013 after refurbishment and upgrading in a Middle Eastern yard, and will be used primarily for accommodation purposes. We assume revenue contribution of US$16m/year from Jan 2014.
Good ROE from project
Ezion had acquired a cold-stacked rig which is more than 20 years old (estimated cost is about less than US$20m). Hence a considerable amount of refurbishment work is required, which will be done at a Middle Eastern yard. The total project cost is estimated to be about US$40m for Ezion, and will be funded by debt and internal resources under a 70-30 split. With a 5% interest cost, 10 year depreciation period and US$3-3.5m annual operating cost, we estimate a good ROE of slightly more than 55% for this project. This compares with a forecasted ROE of 22% for Ezion in FY13.
Expecting higher leverage
With Ezion’s growing balance sheet, we expect the group to pursue a higher gearing in the future for funding of additional contracts. Net gearing stood at 0.76x as at 31 Dec 2012. There is a possibility that net gearing may hit 1.0x in FY13, after which we expect it to come off.
Maintain BUY
Ezion’s stock price has appreciated by about 18% YTD vs the STI’s 3% rise over the same period. However, we still see an upside potential of more than 15% over a one-year time frame. We tweak our earnings estimates, and based on 12x blended FY13/14F core earnings, our fair value estimate rises from S$2.33 to S$2.35. Maintain BUY.
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