EZION has signed a charter contract to provide bareboat charter for a refurbished jack-up rig worth US$49.1 million over four years. Upgrading and refurbishment work is expected to commence at the Middle East yard next week and the rig is scheduled to be delivered to a national oil company in Middle East by mid-2014. The cost of the project - US$40 million - will be funded by equity (30 per cent) and five-year floating bank borrowings (70 per cent).
The contract is secured at Ezion level and the service rig will be chartered from a 50:50 joint venture (JV) of Ezion and Scott & English Limited, a subsidiary of Kim Seng Holdings. Hence, Ezion will consolidate the project revenue but at minimal profits. Bulk of profits will still be recognised under associate/JV income line and/or other income as management fees, similar to their previous JV vessels. We estimate this latest contract to contribute about US$1.5 million in FY2014 and US$3.2 million in FY2015, representing 0.6 per cent and 1.2 per cent of our FY2014 and FY2015 forecasts, respectively.
Currently, Ezion has only one service rig operating in Middle East, in the Arabian Gulf near Qatar. The second one, which will come on stream by early 2014, will be deployed around that region as well.
We are keeping our forecasts intact, with the expectations of three additional contracts this year and eight next year. Maintain "buy" on Ezion with an unchanged target price of S$3.20, pegged to 14 times FY2013/14 PE. We continue to like Ezion's strong growth profile and earnings visibility.
BUY
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