Ezion Holdings: Buy, FV: SGD2.55

Ezion’s strong 4QFY12 net profit of USD20.3m (+26% q-o-q, +88% y-o-y) was slightly above our expectations due to lower depreciation and interest expenses as well as higher third-party vessel charters. We remain positive on the stock for its: (i) further FY14-15 EPS upgrades from contract wins,(ii) strong earnings visibility due to long-term charters and low downside risk to FY13-14F earnings, and (iii) valuation at 12.5x FY13F P/E and 8.2x FY14F P/E, which is attractive given the +37% EPS CAGR from FY12-15F. Maintain BUY, with a higher TP of SGD2.55, based on 16x FY13F P/E.

Strong FY12 earnings growth due to to commencement of new charters. FY12 net profit of USD78.8m (+36% y-o-y) was above our full-year expectation of USD74m,buoyed by lower-than-forecast depreciation and interest expenses as well as higher third-party vessel charter-in in Australia. 4QFY12 revenue jumped +92% y-o-y to USD52.3m, in line with our expectations, and lifted full-year FY12 revenue to USD158.7m (+48% y-o-y). The growth was primarily driven by the service rigs unit, which reported revenue growth of +119% to USD92m, accounting for 58% of total FY12 revenue (from 39% in FY11).

Another year of aggressive capex, but projects are backed by contracts. Ezion operates a fleet of nine liftboats and service rigs globally, with another 13 units to be delivered from 2013-15. The company ended 4QFY12 with a net gearing of 0.76x, but we estimate this to increase to 1.1x by end-2013 due to another year of heavy capex spending. It may need to issue more perpetual securities if contract flows are as strong as last year.

Earnings: +37% EPS CAGR over FY12-15F. We trim our FY13F EPS by -5.4% on the back of: (i) the drawdown of more debt to fund the latest jackup project for a South Asia national oil company, and (ii) delays in three projects under refurbishment. We raise our FY14F EPS by +8.2% to reflect contribution from the latest jackup project and introduce our FY15F EPS. We are now projecting FY13-15F EPS growth of 47%/52%/15% respectively.

Valuation: Raise TP from SGD2.16 to SGD2.55. We upgrade Ezion’s TP from SGD2.16 to SGD2.55 as we peg the stock’s valuation to a higher target P/E of 16x (from 13x) on FY13F EPS. Our new valuation is close to our DCF-derived valuation of SGD2.52/share (report on 23 Jan 2013), whereby we assume 10 additional contracts to provide liftboats and service rigs on top of the existing charter contracts.

Source: RHB Research - 04 Mar 2013