Results within expectations, next quarter to be stronger. 3Q12 results were within expectations with net profit of USD16.1m (+24.4% YoY, -42.8% QoQ). 9M12 net profit made up about 71% of our full-year forecast. We expect 4Q12 to be stronger sequentially with incremental contributions from more liftboat units and the QCLNG project. However, note that the big leap in earnings for Ezion would be seen in FY13F. We upgrade TP to SGD1.85 as we incorporate contributions from new contracts and raise our PER valuation multiple to 10x on FY13F diluted earnings. Reiterate Buy.

Another new contract win, earnings impact in FY13F. Ezion announced new contract win worth USD298m to provide 2 service rigs over a 7 year period for a National Oil Company in Central America, which we believe to be Pemex. The service rigs are expected to be working by 1Q13 in the Bay of Campeche. We estimate incremental earnings contributions for Ezion at USD8.6m/10.3m for FY13F/14F. We assume 10 months of contribution in FY13F and full year contribution for FY14F. This project would be carried out via a 50:50 JV with Kim Seng Holdings and would be accounted for at the associate level.

New way to fund its projects? Debt taken by the JV would not be accounted for on Ezion’s balance sheet. This arrangement essentially allows Ezion to take on the project without directly stressing its balance sheet and gearing. With the funds raised from the recent perpetual securities, we believe that Ezion could possibly take on 1-2 more service rig contracts on its own. However, the JV arrangement could be the new way for Ezion to carry out future projects, especially bigger sized ones which it may not have sufficient financing resources.

TP lifted to SGD1.85. Ezion’s forecasted earnings are mostly backed by secure contracts. We believe that it deserves to be accorded with a premium valuation above peers given the high quality earnings. We accord higher PER multiple of 10x on our increased FY13F diluted EPS. Our target price is consequently raised to SGD 1.85.

Source: Maybank Kim Eng Research - 07 Nov 2012