Ezion Holdings (Ezion) announced that it has received a letter of intent with a contract value of about US$80.3m over a four-year period to provide a service rig for an Asian-based national oil company. The unit is expected to be deployed in SE Asian waters by end-2013 after refurbishment and conversion. Unlike previous projects, this project will be funded through a bond issue. This is not a surprise to us, as management had previously indicated that they are now more willing to increase the net gearing of the group. We estimate that this project adds about US$5.58m to Ezion’s FY14 net profit, and have tweaked our estimates accordingly. Factoring in more favourable USD/SGD exchange rates, our fair value estimate rises to S$2.62 (prev. S$2.50). Maintain BUY.
Secures LOI with contract value of US$80.3m
Ezion Holdings (Ezion) announced that it has received a letter of intent with a contract value of about US$80.3m over a four-year period to provide a service rig for an Asian-based national oil company. The unit is expected to be deployed and working in SE Asian waters by end-2013 after refurbishment and conversion.
Funded entirely by debt
Unlike previous projects, this project will be funded through a bond issue; the total project cost is US$60m (US$40m asset cost, US$20m for refurbishment and conversion of the 20-year-old rig). This is not a surprise to us, as management had previously indicated that they are now more willing to increase the net gearing of the group. As mentioned in our earlier reports, the net gearing of the group may increase to about 1.0x by the end of the year. Indeed, we understand that Ezion has just launched S$110m of six-year bonds at 4.70%. As the group only has to repay the principal at maturity (bullet bond), it is able to use the cashflows generated from this latest project for other purposes.
Maintain BUY
Along with assumptions of depreciation over 10 years, 5% interest cost and operating costs of about US$4.5m, we estimate that this project adds about US$5.58m to Ezion’s FY14 net profit, and have tweaked our estimates accordingly. Factoring in more favourable USD/SGD exchange rates, our fair value estimate rises to S$2.62 (prev. S$2.50). YTD, Ezion’s stock price has appreciated by about 35.5% vs the STI’s 8.7% rise over the same period. However, we still see an upside potential of more than 15% over a one-year time frame, based on its existing contracts. Maintain BUY.
Ezion Holdings (Ezion) announced that it has received a letter of intent with a contract value of about US$80.3m over a four-year period to provide a service rig for an Asian-based national oil company. The unit is expected to be deployed and working in SE Asian waters by end-2013 after refurbishment and conversion.
Funded entirely by debt
Unlike previous projects, this project will be funded through a bond issue; the total project cost is US$60m (US$40m asset cost, US$20m for refurbishment and conversion of the 20-year-old rig). This is not a surprise to us, as management had previously indicated that they are now more willing to increase the net gearing of the group. As mentioned in our earlier reports, the net gearing of the group may increase to about 1.0x by the end of the year. Indeed, we understand that Ezion has just launched S$110m of six-year bonds at 4.70%. As the group only has to repay the principal at maturity (bullet bond), it is able to use the cashflows generated from this latest project for other purposes.
Maintain BUY
Along with assumptions of depreciation over 10 years, 5% interest cost and operating costs of about US$4.5m, we estimate that this project adds about US$5.58m to Ezion’s FY14 net profit, and have tweaked our estimates accordingly. Factoring in more favourable USD/SGD exchange rates, our fair value estimate rises to S$2.62 (prev. S$2.50). YTD, Ezion’s stock price has appreciated by about 35.5% vs the STI’s 8.7% rise over the same period. However, we still see an upside potential of more than 15% over a one-year time frame, based on its existing contracts. Maintain BUY.
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