Vote of confidence. EDB Investments (EDBI) has given its vote of confidence to Ezion with a proposed subscription of new shares in the latter. Other than providing financing, we believe that EDBI could open gateways for Ezion to secure more contracts from prominent oil and gas players, given its extensive network. Reiterate BUY and with target price lowered to SGD1.81 as we adjust for dilution from new shares.

Financing is secured. We highlight that financing for Ezion’s announced projects have been secured. Ezion has put in the required ~30% equity and the rest would mainly come from project financing. It has utilised about 60-70% of the SGD125m perpetual securities raised. With the remainder of its financial resources, we estimate that Ezion can take on another two USD80-90m type service rig contracts. Following EDBI’s proposed investment, Ezion will have additional equity of SGD18.9m, and with better cashflows next year, Ezion will have greater capacity to take on more projects

Prelude to more contract wins. Traditionally, Ezion secures its financing before announcement of any contracts. We view EDBI’s investment in Ezion not only as a positive sign of endorsement but also as a prelude to more contract wins.

Mexican wave rising. Recent offshore orders wins saw rigbuilders, Keppel and Sembcorp Marine securing jackups built to work for Mexican NOC, Pemex. The last two service rig contracts secured by Ezion were also for the latter, reflecting Pemex’s aggressive drive in offshore activities. Given Ezion’s good track record with Pemex (5 secured contracts), this could be a channel where new contract wins would come from in the near term.

Potential for earnings upgrade. We are increasingly confident that Ezion would continue to deliver in 2013 with more contract wins. We lower our TP to SGD1.81, which is pegged to 10x FY13F PER, as we account for dilution from new shares. However, we see room for earnings upgrade as Ezion announces more contract wins in FY13F. Reiterate BUY.

Source: Maybank Kim Eng Research - 19 Dec 2012