The recent market sell-down has highlighted the resilience of the stock of Ezion Holdings. YTD, the STI has given up its gains this year, while the FTSE Oil and Gas Index is down about 1.2%. However, investors of Ezion are still sitting on gains of about 35.5%. Possible reasons behind this good performance include 1) good earnings visibility from its secured contracts, 2) limited risk of contract cancellations with its well-diversified and established customer profile, and 3) upside risk as Ezion leverages on its scalable model to continue to expand its presence in various parts of the world. Our fair value estimate of S$2.62 is based on Ezion’s existing contracts; contracts secured in the future that impact FY13F and FY14F earnings may be further price catalysts. Maintain BUY.
Resilience shows during times of volatility
The recent market sell-down has highlighted the resilience of the stock of Ezion Holdings– the STI has lost about 6.8% from its 52-week high of 3464.79 on 22 May 2013, while the FTSE Oil and Gas Index has slipped about 3.5%. In contrast, Ezion’s share price has dropped by about 3.4% over the same period. YTD, the STI has given up its gains this year, while the FTSE Oil and Gas Index is down about 1.2%. However, investors of Ezion are still sitting on gains of about 35.5% YTD.
Possible reasons behind good performance
What could account for this show of relative stability? Ezion’s earnings are backed by secured contracts for a fleet of 27 liftboats and service rigs, five out of which contribute to the share of associates/JV line. Earnings from its first liftboat started to flow in 1Q10, and the group currently has contracts extending till 4Q18, not counting options that may be exercised by the customers in the future. The group’s customers are also established players in the oil and gas industry and are usually national oil companies from various parts of the world, providing good diversification. As such, we see limited risk of contract cancellations, especially with oil prices expected to remain elevated in 2013 and 2014. Indeed, there is currently more upside risk as Ezion leverages on its scalable model to continue to expand its presence in Asia, the Gulf of Mexico, and the North Sea.
Still has upside; fair value based on existing contracts
Our fair value estimate of S$2.62 (12x FY13/14F core earnings) is derived from the expected contributions of Ezion’s existing contracts. Contracts that the group secures in the future that will have an impact on FY13F and FY14F earnings may be further price catalysts. Despite the good stock price performance YTD, we still see an upside potential of about 14% over a one-year time frame. Maintain BUY.
The recent market sell-down has highlighted the resilience of the stock of Ezion Holdings– the STI has lost about 6.8% from its 52-week high of 3464.79 on 22 May 2013, while the FTSE Oil and Gas Index has slipped about 3.5%. In contrast, Ezion’s share price has dropped by about 3.4% over the same period. YTD, the STI has given up its gains this year, while the FTSE Oil and Gas Index is down about 1.2%. However, investors of Ezion are still sitting on gains of about 35.5% YTD.
Possible reasons behind good performance
What could account for this show of relative stability? Ezion’s earnings are backed by secured contracts for a fleet of 27 liftboats and service rigs, five out of which contribute to the share of associates/JV line. Earnings from its first liftboat started to flow in 1Q10, and the group currently has contracts extending till 4Q18, not counting options that may be exercised by the customers in the future. The group’s customers are also established players in the oil and gas industry and are usually national oil companies from various parts of the world, providing good diversification. As such, we see limited risk of contract cancellations, especially with oil prices expected to remain elevated in 2013 and 2014. Indeed, there is currently more upside risk as Ezion leverages on its scalable model to continue to expand its presence in Asia, the Gulf of Mexico, and the North Sea.
Still has upside; fair value based on existing contracts
Our fair value estimate of S$2.62 (12x FY13/14F core earnings) is derived from the expected contributions of Ezion’s existing contracts. Contracts that the group secures in the future that will have an impact on FY13F and FY14F earnings may be further price catalysts. Despite the good stock price performance YTD, we still see an upside potential of about 14% over a one-year time frame. Maintain BUY.
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