Ezion Holdings

DMG & Partners Research, April 18

EZION announced that its joint venture (JV) with Kim Seng Holdings has secured a U$148.6-million charter contract from a national oil company (NOC) to provide a service rig in the Bay of Campeche in Central America. The bareboat contract will be for five firm years with two optional years. The investment for the service rig is estimated to cost U$80 million and will be funded by U$56 million debt and US$24 million equity. The debt will be carried by the JV and not reflected on Ezion's balance sheet.

The latest contract will be the sixth service rig to be deployed for the NOC in Central America; three units will be 100 per cent owned by Ezion and three units owned by the 50:50 JV with Kim Seng. Demand for liftboats and service rigs remains strong and we see room for Ezion to win more orders.

Funding for new projects is likely to be in the form of perpetual securities or joint venture. Management's least preferred funding option is equity raising.

Our assumptions are based on: (i) annual bareboat revenue of U$21 million; (ii) 10-year depreciation profile; and (iii) 5 per cent interest cost on U$56 million debt. The implied project ROA (return on assets) and ROE are 13 per cent and 43 per cent respectively, in line with previous projects in Central America. We maintain FY13 forecast EPS and raise our FY14 forecast EPS by 2.5 per cent to reflect the new charter contribution.

Our TP is based on 16x FY13 forecast PE. We expect Ezion to achieve 82 per cent and 62 per cent recurring net profit growth in FY13 forecast and FY14 forecast respectively. Our estimates are based on existing charter contracts in the pipeline.

We remain positive on Ezion for its undemanding valuation versus the strong EPS growth, high visibility from long-term charters and positive news flow on new contracts.

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