Ezion Holdings

DBS Group Research, Oct 1

EZION is proposing to inject its marine supply base asset into Ocean Sky at cost via a share swap. Post exercise, Ezion will hold 45.15 per cent in Ocean Sky while the latter will have a 2 per cent stake in Ezion. Valuation of Ocean Sky seems reasonable at one-time P/BV, based on an estimated NTA of S$108 million. This is a strategic move to enable Ezion to tap the growth potential of the marine supply base business in Australia without stretching its balance sheet and resources further, while allowing the company to stay focused on its core liftboat and service rigs business. In addition, US$30 million capex spent on the marine supply base will be freed up for reinvestment.

We have reduced the earnings contribution from marine supply base from 100 per cent to 45.15 per cent and imputed in the 2 per cent share cap increase. This leads us to trim FY13/14/15F EPS by 2.2/3.3/3.8 per cent. There is EPS dilution in the near term due to the time lag between investment and earnings contribution from the marine supply base expansion, which is still in its infancy. Post exercise, Ocean Sky is projected to have cash of S$60 million for business expansion. We have not factored in any potential from this.

Our TP is adjusted to S$3.10 following the EPS revision, still pegged to 14 times FY13/14F PE. The share price weakness post announcement is unwarranted and we advocate to "buy" the shares on weakness. Ezion offers strong growth of 54 per cent EPS CAGR (FY12-15F) and earnings visibility is high as 90 per cent of revenue over FY13-14 is backed by secured contracts.

BUY