Ezion Holdings

Kim Eng on 16 Feb 2012

On-track execution. Ezion has announced two developments that have validated the positive outlook for the company. First, it has secured another service jack-up contract, and second, it has effected the sale and leaseback of another liftboat to manage its capital for expansion. As a result, its share price has surged and we believe that its discounted ratings should be a thing of the past. We are raising our core earnings forecasts for FY13F and our target price is increased to $1.35. Reiterate Buy.

Another new contract snared. Ezion has won a US$80.3m charter contract over four years to provide a second North Sea Class service rig for a European oil major to support its activities in offshore Denmark. Expected to cost some US$85m, the rig will be deployed by 4Q12 after its refurbishment and upgrading. It will be funded through internal resources and bank borrowings. We estimate that this contract will boost Ezion’s earnings by around US$6m pa from FY13.

Capital recycling for growth. Ezion has agreed to a sale-and-leaseback arrangement for its fourth liftboat and will raise some US$25m from the transaction. The liftboat is valued at US$77.5m and we expect an extraordinary gain of around US$10m in FY12. Ezion will then bareboat the liftboat back for six years to fulfil its contract, and will still be able to generate around US$2-3m pa in earnings from this. In short, the company is able to maximise its capital and cash flow while maintaining full commercial and operational control of the vessel. This also provides capital to raise its fleet size to boost earnings even more.

Overhang receding. Aside from the one-off gain from the sale-and-leaseback arrangement, we maintain our core earnings forecasts for FY12F. FY13F earnings are boosted by 6% on the new contract. We expect Ezion to announce more contracts in the coming months. As it stands, its FY12F PER is still a bargain at 7.1x. We also raise our target price from $0.99 to $1.35, based on 0.3x core PEG or just 11x FY12F PER. Ezion will report its FY11 earnings on 22 February 2012 and our forecast stands at $57.2m.