Raising EPS forecasts, TP upgraded to SGD3.00; reiterate Buy. We raise FY15E EPS by 9.2% after factoring in: (1) renewal of liftboat contracts due to expire from FY14E and (2) USD400m worth of new liftboat contract wins in FY14E which we previously had not factored in any. We raise our TP to SGD3.00, valuing Ezion at 13x FY14E P/E (from 11x), backed by a higher FY15E EPS growth forecast of 17.0% vs 9.6% previously. Ezion remains one of our preferred picks for 2014.

Asset buybacks are positive signals. Our optimism is reinforced by recent proposed asset buybacks. Ezion’s motivation for higher asset ownership suggests strong confidence in contract-win potential. This is also helped by Ezion’s first mover advantage in an under-penetrated liftboat market in the Asia and Middle East region.

May enjoy higher renewal rates. We noted that charters for one liftboat unit (unit 4) would be due for renewal in FY14E and another five in FY15E. We incorporate most renewals based on existing rates (except for unit 4) but the risk is on the upside. Ezion is a market leader in the provision of liftboats in the region and hence, should command good pricing power. Ezion believes that unit 4 could secure a 10% rate hike if it is successfully reflagged to an Indonesian–flag vessel. A proactive fleet management, which entails assigning the right vessels to the right job, may also boost the chances of higher renewal rates.

Expect USD400m of new contracts in FY14E. Come 2014, we expect Ezion to secure four new charter contracts on a 100% basis and two on a 50% joint basis, which collectively have an effective value of USD400m (FY12:USD1.1b; FY13:USD584m). This may require a minimum capex of USD300m of which USD90m would be the project equity assuming a debt/equity structure of 70/30.

Net gearing to improve in 2015E as free cashflow turns positive. While net gearing will rise to 107.3% in FY14E, it remains comfortable as financing commitments are secured by strong and recurring cashflows from charter contracts. In any case, we expect Ezion’s net gearing to improve to 73% in 2015E.  

Source: Maybank Kim Eng Research - 8 Jan 2014