Ezion Holdings

OCBC on 8 Mar 2012

Ezion Holdings (Ezion) has secured a charter contract worth US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China (likely China Datang). Estimated ROE is attractive at about 55-60%, but there are certain risks in this project, such as yard execution risk since the unit will be built in a Chinese yard. China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of offshore wind turbines. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle, reducing our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY.

Secures US$65.7m liftboat contract
Ezion Holdings (Ezion) has secured a charter contract worth about US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China. The unit is on bareboat charter, and it will contribute US$16.4m in revenue and about US$9.4m in net profit per year. Total project cost is around US$72m with a 77%-23% debt-equity split. Estimated ROE is attractive at about 55-60%, but there are certain risks in this project as well.

Yard execution risk 
We understand that the unit will be built in a Chinese yard, which is not surprising since the customer is a state-linked entity and the unit will be used to support energy generation in China. Depending on the yard chosen, there would be varying degrees of execution risk since Chinese yards have little track record in building liftboats. Should there be a delay in delivery, the compensation obtained from the yard may or may not be sufficient to cover Ezion’s penalty towards the customer of the charter contract.

Entering China’s offshore wind industry
China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of wind turbines at an offshore wind farm. From our understanding, the top five power companies in China are China Huaneng, China Guodian, China Datang, China Huadian and China Power Investment Corp; we think the customer is likely to be China Datang. The liftboat is expected to work in the Yellow Sea in 3Q13 upon completion, and this project is expected to have a positive material impact on the group’s earnings in FY13. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle. This reduces our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY. 

Ezion Holdings

OCBC on 22 Feb 2012

Ezion Holdings (Ezion) reported a 8.7% fall in revenue to US$107.0m but a 44.6% increase in net profit to US$58.1m in FY11, accounting for 100.2% and 100.7% of our full year estimates, respectively. Ezion has also clinched its fourth service rig contract worth up to US$118m from a European-based customer, which is likely to be Total S.A. We estimate a decent ROE of 25-30% for this project. Management is optimistic about opportunities in the service rig and logistics segments, and given the amount of potential work that may come up, there is a possibility of a fund raising. Meanwhile, we roll over our valuation to 10x FY12F earnings and as such our fair value estimate rises to S$1.18 (prev. S$0.97). Maintain BUY.

FY11 results in line.Ezion Holdings (Ezion) reported a 8.7% fall in revenue to US$107.0m but a 44.6% increase in net profit to US$58.1m in FY11, accounting for 100.2% and 100.7% of our full year estimates, respectively. Revenue was lower on year due to the absence of revenue from marine services (of ad-hoc nature) and also lower on a sequential basis with lower contributions from the liftboat division. Liftboat 4, which is on charter with Pertamina, underwent modification work (~seven weeks) before being deployed in the Java Sea in Dec last year.

Secures yet another service rig contract.Ezion also announced today that it has clinched its fourth service rig contract worth up to US$118m over a three year period from a European-based multinational oil company. The rig will be deployed in the Yadana field in offshore Myanmar before the end of this year, and a quick check shows that Total S.A. and state-owned MOGE (Myanmar Oil & Gas Enterprise) entered into contract to develop the field in 1992. The cost of procurement, refurbishment and upgrade of the rig is approximately US$90m, and conversion work will start in Mar. We estimate a decent ROE of 25-30% for this project.

Fund raising in the pipeline?.
Management is optimistic about opportunities in the service rig and logistics segments. Given the amount of potential work that may come up in the near future, there is a possibility of Ezion undertaking a fund raising via avenues such as a placement. The group may also attempt a preference share issue; recall that it proposed a perpetual capital securities issue in 2H11 but nothing materialized due to market conditions. Should a fund raising occur, there may be a negative knee-jerk reaction once the trading halt is lifted, depending on the terms and conditions. Meanwhile, we roll over our valuation to 10x FY12F earnings and as such our fair value estimate rises to S$1.18 (prev. S$0.97). Maintain BUY. 

Ezion Holdings

Kim Eng on 23 Feb 2012


Ezion Holdings (EZI SP) – Myanmar beckons
Previous day closing price: $0.945
Recommendation – Buy (maintained)
Target price – $1.35 (maintained)


Positive moves. Ezion has made two significant announcements. Firstly, its 45% FY11 net earnings growth is clear validation of its bullish prospects. Secondly, it has announced its largest-ever liftboat contract, this time in Myanmar, which is a golden opportunity in this fast-emerging economy. However, Ezion will be raising funds – while the potential dilution is negative, it simply needs to fund its strong growth potential. We believe investors should focus on the long-term benefits of this. We maintain our Buy call and target price of $1.35.


Strong showing for FY11. Ezion’s FY11 earnings came in at US$58.1m, marginally better than our forecast of US$57.2m. This is despite revenue declining by 8.7% due to lower non-recurring and non-chartering income. However, margins were improved from a higher proportion of income generated from the lucrative liftboat segment. EBIT margins were at an even more impressive 49% versus 33% in FY10. Higher associate income further solidified its earnings.


Myanmar contract a massive boost. Ezion has won a US$118m three-year contract to provide a service rig in Myanmar for a European oil major. This is the single largest rig charter ever secured by the company, and also the most lucrative. We estimate that its annual US$39m revenue will generate net earnings of around US$15m pa. The rig itself will be procured and refurbished for US$90m and will be operational by end-2012. More importantly, it gives Ezion a significant foothold in a once-closed economy, and is a precursor of more significant and lucrative offshore opportunities in this resource-rich country, in our opinion.


Maintain Buy, new shares to fund growth. We are raising our FY13 forecast by 13% to take into account this latest contract. Three-year earnings CAGR stands at 33%. Our conservative valuation of $1.35 is based on 0.3x core PEG or just 11x FY12F PER. We expect more contracts in the coming months. However, Ezion is raising US$95m via a placement of 110m shares at 88cts. This is 15% dilutive and at a discount of 6.6%. This is to capitalise on growth prospects. Even factoring this in, Ezion would still be trading at just 9.0x FY12F PER and 5.7x FY13F PER.

Ezion Holdings

Kim Eng on 16 Feb 2012

On-track execution. Ezion has announced two developments that have validated the positive outlook for the company. First, it has secured another service jack-up contract, and second, it has effected the sale and leaseback of another liftboat to manage its capital for expansion. As a result, its share price has surged and we believe that its discounted ratings should be a thing of the past. We are raising our core earnings forecasts for FY13F and our target price is increased to $1.35. Reiterate Buy.

Another new contract snared. Ezion has won a US$80.3m charter contract over four years to provide a second North Sea Class service rig for a European oil major to support its activities in offshore Denmark. Expected to cost some US$85m, the rig will be deployed by 4Q12 after its refurbishment and upgrading. It will be funded through internal resources and bank borrowings. We estimate that this contract will boost Ezion’s earnings by around US$6m pa from FY13.

Capital recycling for growth. Ezion has agreed to a sale-and-leaseback arrangement for its fourth liftboat and will raise some US$25m from the transaction. The liftboat is valued at US$77.5m and we expect an extraordinary gain of around US$10m in FY12. Ezion will then bareboat the liftboat back for six years to fulfil its contract, and will still be able to generate around US$2-3m pa in earnings from this. In short, the company is able to maximise its capital and cash flow while maintaining full commercial and operational control of the vessel. This also provides capital to raise its fleet size to boost earnings even more.

Overhang receding. Aside from the one-off gain from the sale-and-leaseback arrangement, we maintain our core earnings forecasts for FY12F. FY13F earnings are boosted by 6% on the new contract. We expect Ezion to announce more contracts in the coming months. As it stands, its FY12F PER is still a bargain at 7.1x. We also raise our target price from $0.99 to $1.35, based on 0.3x core PEG or just 11x FY12F PER. Ezion will report its FY11 earnings on 22 February 2012 and our forecast stands at $57.2m.

Ezion Holdings

Kim Eng on 14 Feb 2012

Going places. Ezion continues to build on its strength and reputation with more deals secured. It recently won a contract to provide a service rig for operations in the Gulf of Mexico. As it stands, the group has only just scratched the surface of its business segment, especially in Asia Pacific. With earnings growing but valued at just 6x FY12F PER, Ezion is clearly underrated. We expect positive newsflow over the course of the year to drive its share price. Maintain Buy and target price of $0.99.

New contract snared. Ezion recently secured a charter contract worth US$93.5m over 4.5 years to provide a well servicing rig for a national oil major. The rig is expected to be deployed and working in the Sonda de Campeche field in the Gulf of Mexico by 3Q12 after refurbishment and upgrading. The project will be funded through internal resources and bank borrowings. We estimate that the rig will be procured and refurbished for around US$50m, which gives Ezion an annual return of around 30-35%. This is in line with its other rig ventures.

More to come. Ezion currently has jobs in the Middle East, Southeast Asia, West Africa, the North Sea, North and Central America and Australia. We also understand that it is negotiating for contracts in a number of regions and expect newsflow to pick up very soon. We speculate the pipeline to include a second accommodation unit for Maersk, more liftboats for Asia Pacific, more specialised vessels in North Asia, and various other projects in Australia.

Undervalued from any angle. We raise our FY12F/13F forecasts by 3% and 8%, respectively, to factor in the latest rig contract. We expect a three-year earnings CAGR of 33%, with strong upside potential from new contracts. Ezion’s balance sheet is significantly improved with gearing at 0.2x, and we believe it can take on another three new rig newbuilds. Further sale-leasebacks are another option. Ezion’s FY12F PER stands at a bargain 5.8x. Our target price of $0.99 is conservatively based on 0.3x PEG or just 9x FY12F PER. A rerating of its FY12 multiple to our sector target of 13x values Ezion at $1.65.