Ezion announced that it has secured a charter contract worth US$80m to provide a service rig over a four-year period in the Gulf of Mexico and is expected to be working by 4Q12. We are positive on this due to the decent forecasted ROE, management’s previous working relationship with the customer, as well as the project’s ability to generate a steady stream of earnings within a short period of time, barring any hiccups. We tweak our estimates, and based on 10x blended FY12/13F core earnings, raise our fair value estimate to S$1.21 (prev. S$1.05). The stock has risen 52% YTD, and is now at a 44-month high since Jul 07. However, given an estimated upside potential of about 21%, we maintain our BUY rating.
Another service rig contract for Gulf of Mexico
Ezion announced that it has secured a charter contract worth US$80m to provide a service rig over a four-year period. This is actually over a three year period with a one year option that is likely to be exercised. The rig is Ezion’s second unit that will be deployed in the Sonda de Campeche field in the Gulf of Mexico and is expected to be working by 4Q12. The customer is a national oil major with activities in Central America, and is likely to be PEMEX.
Decent ROE on project
Ezion will acquire an old rig from the market which will undergo refurbishment and upgrading. The total project cost of US$55m will be funded by debt and equity in a 70-30 split, respectively. We estimate ROE to be around 34% which is comparable to the first rig bound for the same field (announced 26 Jan 2012) and also higher than the group’s overall ROE of about 22%.
Adds to steady stream of earnings
We are positive on this recent development due to the decent forecasted ROE, management’s previous working relationship with the customer, as well as the project’s ability to generate a steady stream of earnings within a short period of time, barring any hiccups. This is not something new for Ezion, and the recent clinching of similar contracts shows the scalability of the business model, with the balance sheet as the main constraint.
Maintain BUY
Looking ahead, the group is looking at possible work at other parts of the world, including West Africa, the Middle East, the ASEAN region and China. We tweak our estimates to account for the latest contract, and based on 10x blended FY12/13F core earnings, we raise our fair value estimate to S$1.21 (prev. S$1.05). The stock has risen 52% YTD, and is now at a 44-month high since Jul 07. However, given an estimated upside potential of about 21%, we maintain ourBUY rating.
Ezion announced that it has secured a charter contract worth US$80m to provide a service rig over a four-year period. This is actually over a three year period with a one year option that is likely to be exercised. The rig is Ezion’s second unit that will be deployed in the Sonda de Campeche field in the Gulf of Mexico and is expected to be working by 4Q12. The customer is a national oil major with activities in Central America, and is likely to be PEMEX.
Decent ROE on project
Ezion will acquire an old rig from the market which will undergo refurbishment and upgrading. The total project cost of US$55m will be funded by debt and equity in a 70-30 split, respectively. We estimate ROE to be around 34% which is comparable to the first rig bound for the same field (announced 26 Jan 2012) and also higher than the group’s overall ROE of about 22%.
Adds to steady stream of earnings
We are positive on this recent development due to the decent forecasted ROE, management’s previous working relationship with the customer, as well as the project’s ability to generate a steady stream of earnings within a short period of time, barring any hiccups. This is not something new for Ezion, and the recent clinching of similar contracts shows the scalability of the business model, with the balance sheet as the main constraint.
Maintain BUY
Looking ahead, the group is looking at possible work at other parts of the world, including West Africa, the Middle East, the ASEAN region and China. We tweak our estimates to account for the latest contract, and based on 10x blended FY12/13F core earnings, we raise our fair value estimate to S$1.21 (prev. S$1.05). The stock has risen 52% YTD, and is now at a 44-month high since Jul 07. However, given an estimated upside potential of about 21%, we maintain ourBUY rating.
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