Ezion Holdings

DMG & Partners, March 20

Ezion secured its fourth charter contract of 2013, lifting its YTD new charters to US$290 million. The latest contract to provide a refurbished service rig for three years in the Persian Gulf is valued at US$48.2 million.

The charter is expected to start in Q4 2013. We believe Ezion can easily fund the US$12 million equity portion from its internal cash flow, but net gearing will increase to 1.05x by end-FY13 (from 0.95x).

We have revised FY13-14 forecast EPS by -0.1 per cent and +3.6 per cent respectively on the new contract. Maintain "buy" with a TP of S$2.48, which is based on 16x FY13 forecast PE.

Ezion secured a three-year charter contract from an international oil company to provide a service rig in the Persian Gulf. The contract came from an existing customer. The service rig will be a refurbished unit and is expected to be deployed in Q4 2013. The service rig will be used by the client as an accommodation unit.

We estimate this contract to generate an annual net profit of U$7.1 million based on (i) US$40 million project capex funded by US$28 million debt and US$12 million equity; (ii) an annual revenue of US$16 million; (iii) a 10-year depreciation profile which is equivalent to US$4 million per annum; (iv) an annual operating cost of US$3.5 million; and (v) an annual interest expense of US$1.5 million. The ROE and ROA (return on assets) are estimated at 59 and 17 per cent respectively.

We factor in one month revenue from the new charter in FY13 and full contribution in FY14. The changes reduced FY13 forecast EPS by 0.1 per cent due to interest incurred to fund the refurbishment but lifted FY14 forecast EPS by 3.6 per cent. We estimate net gearing will increase from 0.95x to 1.05x by end-FY13.

Valuation: Maintain "buy" with an unchanged TP of S$2.48. Our TP is based on 16x FY13 forecast EPS. We like Ezion for its high earnings visibility, strong net profit growth of +82 per cent and +58 per cent for FY13-14 forecast respectively and ability to capture the rising demand for liftboats and service rigs. Key risks are project delays, cost overruns and inability to renew charter contracts for older rigs.

BUY