Ezion Holdings

Kim Eng on 3 Jan 2012

TP upgrade ahead of more contract wins. We pointed out that recent developments herald more contract wins ahead. We incorporate such expectations into our forecasts, raising FY13F/14F net profit estimates by 4%/18%. We upgrade TP to SGD2.30 and reiterate Buy on Ezion.

Ezion’s earnings modeled based on secured contracts. Current street estimates model Ezion’s earnings based on secured contracts, while many other offshore & marine stocks are modeled based on expected contract wins. For this reason, every contract win was a positive price trigger for Ezion in 2012. It was reasonable to model Ezion’s earnings in such a way then, as it was relatively young in the liftboat business and we could not assume that it would consistently win such contracts.

Time to incorporate expected wins. Following a solid 2012 performance, our confidence is strengthened. With increasing adoption of liftboats, Ezion could well keep the contract win momentum going as it works towards a fleet target of about 30 liftboats. It blows our mind to imagine that 2013 could be an equally good year. We turn more forward-looking and incorporate USD0.8b in expected contract wins in FY13F, which puts our FY14F forecast way ahead of consensus.

Street underestimates earnings potential. By not factoring in future contract wins, we believe that the street underestimates FY14F earnings. We expect consensus to play catch up as they upgrade their earnings estimates on new order flows.

Expect more fund raising to support growth. While cashflows are expected to improve in FY13F, at the pace of our expected contract win assumption, Ezion would need to raise more funds in 2013. This should not be a cause for concern as we have highlighted that profitability of its projects far outweighs the cost of its funding.

Reiterate Buy, TP ugraded to SGD2.30. We upgrade our target price to SGD2.30, pegged to a higher PER multiple of 12x on diluted recurring FY13F earnings. We accord premium valuation multiple considering our expected 54% CAGR in earnings over FY12-14F.