Ezion Holdings

OCBC on 14 Sept 2012

The stock of Ezion Holdings (Ezion) has performed very well in the past few months, rising more than 75% since early Jun. This has been due to the clinching of contracts at attractive rates of return, smooth execution of projects, and commendable earnings. In addition, Ezion may be the first O&M company in Singapore to list perpetual securities, projecting management’s strong sense of confidence in the company’s growth. The proposed listing of Triyards and increased frequency of LNG-related news reports and conferences may have also helped sentiment. Ezion has been our small-mid cap pick since we highlighted it in our strategy report last year, but it should henceforth be better classified as a mid-cap counter. We roll forward our valuation with an unchanged peg of 9x FY13F earnings, increasing our fair value estimate from S$1.20 to S$1.53. Maintain BUY with a one-year horizon, but be cautious of a near-term pull back given the recent run-up.

Stock has performed very well for good reason
The stock of Ezion Holdings (Ezion) has performed very well in the past few months, rising more than 75% since early Jun. In comparison, the STI and the FTSE Oil and Gas Index have appreciated by about 12% and 19% respectively over the same period. YTD, Ezion is up about 92%. The good showing has been due to the clinching contracts at attractive rates of return, smooth execution of projects, and commendable quarterly earnings.

1st O&M company to issue perpetual securities
The company recently also proposed a perpetual securities issue (S$125m of 7.8% subordinated perps), and if successfully issued around mid Sep, Ezion will be the first offshore and marine company in Singapore to issue such securities. This projects the strong sense of confidence that management has in the growth of the company. A good take-up of the securities would also reflect investors’ faith in the sustainability of the group’s earnings.

Triyards listing, LNG events also help sentiment
There is also the possibility that the proposed listing of Triyards Holdings has helped sentiment recently due to increased awareness of the self-elevating unit. We also note that the frequency of news reports and the number of LNG conferences has increased considerably in the past six months as well. Ezion has, and is likely to continue, to be a beneficiary of LNG capex.

Now a S$1b company, but upside potential still there
Ezion Holdings has been our small-mid cap pick since we highlighted it in our year-end strategy report last year, but with a market cap of about S$1b now, it should henceforth be better classified as a mid-cap counter. Looking ahead, we roll forward our valuation with an unchanged peg of 9x FY13F earnings, and our fair value estimate increases from S$1.20 to S$1.53. Maintain BUY with a one-year horizon, but be cautious of a near-term pull back given the recent run-up.