Ezion Holdings

CIMB Research on 26 Sept 2012

EZION is on a roll, having secured 12 contracts worth more than US$1 billion in 10 months. Its latest US$200 million contract is the biggest to date, underscoring its growing traction with Asean national oil companies (NOC). Factoring in the latest contract and perpetual securities, we lower our core EPS by 3 to 12 per cent. Maintain "outperform" with a higher target price, still based on blended P/E and P/BV, but rolled forward to one year. Catalysts could come from more contract wins, in our view.

Ezion has sealed a five-year charter contract worth US$201 million for the bareboat-chartering of a service rig to an Asean NOC, believed to be Malaysia's Petronas. The rig will be deployed in the Caspian Sea by Q4 2013 after refurbishment and upgrade. Project costs (rig, upgrade and mobilisation costs) will be US$155 million, to be funded by US$116 million of borrowings and US$39 million of equity (proceeds from recently-issued US$100 million subordinated perpetual securities).

Ezion has also secured a five-year letter of intent worth US$82.1 million for the bareboat-chartering of a liftboat (new build) to the same customer. The service rig is expected to be deployed in Asean waters by Q4 2014. As the economics of the contract has not been ironed out, we have not incorporated it in our forecasts. The Caspian contract is Ezion's biggest to date and reinforces our belief that Ezion is gaining traction with Asean NOCs. We think this is aided by Ezion's growing track record (five service rigs/liftboats are expected to be deployed in Asean waters by end-2013), its management's networking (gleaned from Australia and Denmark contracts) and its resourcefulness in securing funding.

We believe more contracts could follow. Factoring in the latest capex and funding, we estimate a net gearing of 0.8x for FY12 and 0.9x for FY13. Assuming a 1.0x cap on net gearing and 30:70 equity-to-debt financing, Ezion could order five more 320ft liftboats next year.
OUTPERFORM