Ezion Holdings

Kim Eng on 14 Feb 2012

Going places. Ezion continues to build on its strength and reputation with more deals secured. It recently won a contract to provide a service rig for operations in the Gulf of Mexico. As it stands, the group has only just scratched the surface of its business segment, especially in Asia Pacific. With earnings growing but valued at just 6x FY12F PER, Ezion is clearly underrated. We expect positive newsflow over the course of the year to drive its share price. Maintain Buy and target price of $0.99.

New contract snared. Ezion recently secured a charter contract worth US$93.5m over 4.5 years to provide a well servicing rig for a national oil major. The rig is expected to be deployed and working in the Sonda de Campeche field in the Gulf of Mexico by 3Q12 after refurbishment and upgrading. The project will be funded through internal resources and bank borrowings. We estimate that the rig will be procured and refurbished for around US$50m, which gives Ezion an annual return of around 30-35%. This is in line with its other rig ventures.

More to come. Ezion currently has jobs in the Middle East, Southeast Asia, West Africa, the North Sea, North and Central America and Australia. We also understand that it is negotiating for contracts in a number of regions and expect newsflow to pick up very soon. We speculate the pipeline to include a second accommodation unit for Maersk, more liftboats for Asia Pacific, more specialised vessels in North Asia, and various other projects in Australia.

Undervalued from any angle. We raise our FY12F/13F forecasts by 3% and 8%, respectively, to factor in the latest rig contract. We expect a three-year earnings CAGR of 33%, with strong upside potential from new contracts. Ezion’s balance sheet is significantly improved with gearing at 0.2x, and we believe it can take on another three new rig newbuilds. Further sale-leasebacks are another option. Ezion’s FY12F PER stands at a bargain 5.8x. Our target price of $0.99 is conservatively based on 0.3x PEG or just 9x FY12F PER. A rerating of its FY12 multiple to our sector target of 13x values Ezion at $1.65.