Secured LOI from Southeast Asian NOC. Ezion has secured a USD45.3m LOI with a Southeast Asian National Oil Company to provide a liftboat unit for 2 years. The unit is expected to be operating in Southeast Asian waters by 3Q13. We estimate net profit contribution of about USD8.3m on a full-year basis. We understand that Ezion had earlier secured a LOI from the same client to provide a separate liftboat unit from end-2014. The availability of the current unit allows Ezion to start work for the client earlier. Maintain Buy, TP adjusted to SGD2.21.

Buying a high-end unit at discount. Ezion will be acquiring a nearcompleted liftboat unit from DBS bank at a discount to the built price of about USD240m. The latter had foreclosed on this unit from a bankrupted yard. We understand that this is a high-end unit which can even perform windfarm installation works and is equipped with DP2 capability. Ezion does not need to cough out cash, but would instead issue 50m new shares to DBS bank at SGD1.895/sh, raising net proceeds of SGD93.5m for the acquisition of the unit.

DBS provides credit line in return. DBS would provide Ezion with a credit line of USD85m for Phase 1 of the project, where the rig would operate for the mentioned client. A year later (Phase 2), Ezion would seek deployment of the rig in North Sea region where it can command better charter rates. Credit line would be raised to USD105m in this phase. Total project cost is expected to be USD110m in Phase 1, an additional USD30m in Phase 2, where the rig will be retrofitted to North Sea specifications, with a 4 month down-time during this period.

Positives outweigh share dilution. The issue of 50m new shares will result in a 5.2% dilution. However, we believe that the positives outweigh the dilution. Essentially, Ezion solves its potential funding problems, and acquired a valuable asset at a deep discount. This asset could be used to generate higher rates when it is deployed in the North Sea region in the future. It also enables Ezion to satisfy the SEA client’s urgent need for a liftboat. Maintain Buy, TP adjusted to SGD2.21 for dilution and incremental earnings.

Source: Maybank Kim Eng Research - 01 Mar 2013