What is the news?

Ezion Holdings  delivered  steady  3Q13 net profit (excluding exceptional  items)  of  US$36.3mn  (+5.9%  QoQ,  +130.2% YoY), bringing 9M13 core net profit to US$97.0mn (+16.5% YoY).  This  accounts  for  82%/72%  of  PSR/consensus  fullyear forecast.

How do we view this?

Management is expecting 3 vessels to be deployed in 4Q13 (1  unit  in  Caspian  Sea,  1  in  South  Asia  and  1  in  Arabian Gulf). We believe earnings momentum should continue into FY14E, with a 61% increase in earnings from FY13E. 3Q13 net gearing rose to 1.05x from 1.01x in 2Q13 (0.83x in 1Q13). This could lead to slower rate of project wins, in our view, as Ezion tries to control its gearing levels. We expect net gearing to hit 1.1x by end-FY13E, before easing to 0.8x in FY14E on improve free cash flow generation from more vessels contribution.

Investment Actions?

We  raise  our  FY13E/14E  earnings  forecast  by  15%/4%  to factor in new contracts, higher margins and updated SEUs deployment  schedule.  Ezion  is  currently  trading  at 13.7x/9.5x FY13E/14E P/E.  Maintain  Accumulate  with new target  price  of  S$2.53  from  S$2.71  (or  S$2.26  post  bonus share issue), still based on SOTP valuation.

Source: PhillipCapital Research - 18 Nov 2013