Ezion Holdings

Kim Eng on 23 Feb 2012


Ezion Holdings (EZI SP) – Myanmar beckons
Previous day closing price: $0.945
Recommendation – Buy (maintained)
Target price – $1.35 (maintained)


Positive moves. Ezion has made two significant announcements. Firstly, its 45% FY11 net earnings growth is clear validation of its bullish prospects. Secondly, it has announced its largest-ever liftboat contract, this time in Myanmar, which is a golden opportunity in this fast-emerging economy. However, Ezion will be raising funds – while the potential dilution is negative, it simply needs to fund its strong growth potential. We believe investors should focus on the long-term benefits of this. We maintain our Buy call and target price of $1.35.


Strong showing for FY11. Ezion’s FY11 earnings came in at US$58.1m, marginally better than our forecast of US$57.2m. This is despite revenue declining by 8.7% due to lower non-recurring and non-chartering income. However, margins were improved from a higher proportion of income generated from the lucrative liftboat segment. EBIT margins were at an even more impressive 49% versus 33% in FY10. Higher associate income further solidified its earnings.


Myanmar contract a massive boost. Ezion has won a US$118m three-year contract to provide a service rig in Myanmar for a European oil major. This is the single largest rig charter ever secured by the company, and also the most lucrative. We estimate that its annual US$39m revenue will generate net earnings of around US$15m pa. The rig itself will be procured and refurbished for US$90m and will be operational by end-2012. More importantly, it gives Ezion a significant foothold in a once-closed economy, and is a precursor of more significant and lucrative offshore opportunities in this resource-rich country, in our opinion.


Maintain Buy, new shares to fund growth. We are raising our FY13 forecast by 13% to take into account this latest contract. Three-year earnings CAGR stands at 33%. Our conservative valuation of $1.35 is based on 0.3x core PEG or just 11x FY12F PER. We expect more contracts in the coming months. However, Ezion is raising US$95m via a placement of 110m shares at 88cts. This is 15% dilutive and at a discount of 6.6%. This is to capitalise on growth prospects. Even factoring this in, Ezion would still be trading at just 9.0x FY12F PER and 5.7x FY13F PER.