Tuesday, 22 April 2014

Ezion Holdings

Kim Eng on 16 Apr 2014

  • Secures two new three-year liftboat contracts worth a total of USD78.7m, with deployment by 1H15.
  • Places 100m new shares to Malaysian tycoon Quek Leng Chan at SGD1.94/share, a 9.6% discount to VWAP a day ago.
  • Maintain BUY, TP trimmed to SGD2.70 on share dilution.
What’s New
Ezion has secured another two three-year liftboat contracts worth USD35m and USD43.7m respectively. The vessels are to be deployed by 1H15 and we forecast an annual net profit of USD10-
12m from both contracts with ROEs of 40-48% each. Ezion will also issue 100m new shares to the investment vehicle of Malaysian tycoon Tan Sri Quek Leng Chan at SGD1.94/share. The net  proceeds of SGD190m would enable it to continue to invest in new assets to grow its liftboat business.

What’s Our View
Following the share placement, Mr Quek would emerge as Ezion’s second-largest shareholder with a 7.7% stake. In our view, he could play a strategic role in enhancing business opportunities for Ezion in Malaysia. As it is, he has already helped Ezion to secure a higher charter rate for a yet-to-begin liftboat contract, although some reshuffling of vessels would be required. The SGD190m in net proceeds would immediately lower Ezion’s net gearing from 1.15x as of FY13 to 0.97x. More importantly, it provides financial firepower to invest in new assets and liftboat contracts. Contract wins YTD have reached USD260.3m (65% of our forecast of USD400m) for FY14E. Management expresses strong confidence in securing new contracts for the remainder of the year. If the current order win momentum continues, we see scope to raise our FY15E-16E earnings forecasts. We trim our FY14E-16E EPS by 6-7% in view of share dilution and net interest effects. Our TP thus falls  from SGD2.90 to SGD2.70, pegged to 13x FY14E P/E. Reiterate BUY.

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