• FY13 earnings in-line; “reported” earnings up 103% yoy at US$160mn.
• Net gearing expected to ease in FY14.
• Maintain "Accumulate” with new TP of S$2.57.

What happened?

Ezion  posted  a  97.3%  yoy  growth  in  “reported”  net  income  in  its  4Q13  results (US$40.5mn), which is inclusive of the US$2.0mn gain on disposal of assets. FY13 income  stood at US$160.4mn, however after stripping out exceptional items  and preference  dividend,  “recurring”  net  income  came  in  at  US$132.9mn,  which  is 98% of both PSR and consensus FY13 forecast.

How we view this

The  103.4%  yoy  income  growth  in  FY13  was  primarily  driven  by  (1)  new  vessels kicking  in,  which  saw  a  77.7%  top-line  revenue  growth,  and  (2)  EBIT  margin expansion  to  42.3%  from  36.0%  in  FY12,  due  to  higher  contribution  from  its Australia LNG projects.

4Q13  net  gearing  rose  to  1.15x  from  1.05x  in  3Q13,  which  is  in-line  with  our estimate of 1.12x. Due to its “capex heavy” business model,  gearing will naturally rise as Ezion expands its SEU fleets. That said, we expect gearing to ease to 1.0x level in FY14, as free cash flow improves.

Investment Action

Out  of  the  30 SEU  contracts  secured  for  Ezion,  only  17  of  them  have  started  to contribute as of end FY13. With another 9 units beginning to operate in FY14, 3 in FY15, and 1 in FY16, we believe earnings momentum will continue over the next 2 years.

We make minor adjustment to our FY14E estimates, to account for changes in SEU deployment  schedule  and the  recent  two asset  buybacks  announced  in  January. Our  target  price  is  raised  to  S$2.57,  still  based  on  SOTP  valuation.  Ezion  is currently trading at 9.9x/8.9x FY14E/15E P/E. Maintain Accumulate.

Source: Philip Securities Research - 21 Feb 2014