Ezion Holdings

DMG & Partners Research, July 1

AS Ezion's share price has fallen 14 per cent since its recent peak, we see this as an opportunity to accumulate. We believe that concerns over the impact of rising interest rates on the group are overdone.

We estimate that net gearing will rise to 1.14 times by end- FY2013. However, we are not concerned, as the borrowings are backed by steady cash inflow of about US$1.6 billion from its liftboat and service rig chartering business.

YTD for 2013, Ezion has secured US$445 million new charters against US$1.12 billion in 2012.

Even in a scenario of zero new charters for the rest of 2013, we see little downside risk to our earnings projections, as we have not factored in new charters apart from the contracts already announced.

We are projecting FY2013/ 2014/2015 net profits of US$117 million/US$200 million/US$243 million, primarily driven by charter contracts secured in the past three years.

Based on the current pipeline of contracts, Ezion's fleet is set to expand from 15 units in H1 2013 to 26 units by H1 2015.

Based on our analysis, Ezion can undertake capital expenditure of US$100 million in FY2014 and US$500 million in FY2015, assuming no fresh equity raising and renewal of the perpetual securities.

We forecast that the new investments can deliver up to US$65 million net profit, implying potential FY2015 EPS revision of up to 28 per cent. Our model does not reflect new charters beyond orders in hand.

Reiterate "buy" with S$3.00 target price. We value Ezion based on 16 times blended FY2013/2014 EPS estimate, with potential re-rating to be driven by more charter contracts and increasing institutional shareholding profile.

Key downside risks are delays in asset delivery to end-clients, rising costs in Australia and inability to secure cash flow from its marine supply base.

BUY