In an SGX announcement before market open yesterday, Ezion reported an outstanding 108% year-on-year (YoY) growth in profits in the fourth quarter of 2013 (US$40.5m), 16% ahead of street estimates and in line with Macquarie Equities Research (MER). Ezion’s growth has been rapid, from US$10m profit in the fourth quarter of 2011 to 4 times that amount in fourth quarter 2013.

Below are excerpts from yesterday’s MER report analysing Ezion’s results:
 
The Good
As more self elevating units (SEUs) are delivered – revenue, margin and profit growth follow: Ezion delivered 4 SEUs in the quarter, thus leading to 52% YoY growth in revenues, 2.6% YoY expansion in EBIT margins and 108% growth in profit.
 
31 SEUs in total now; Ezion is the largest SEU player in the world: Two new contracts have been added in 2014 year to date, taking Ezion’s total fleet to 13 liftboats and 18 service rigs.
 
The Bad
Leverage increases: Net Debt / Equity is up to 115% versus 101% in the last quarter. This is due to Ezion taking new contracts in the last few months.


Looking forward
Out of 31 SEUs, 11 haven’t contributed to P&L, cashflows yet: 6 out of these 11 are scheduled to be delivered in 2014, 4 in 2015 and 1 in 2016, leading to strong growth in revenues, profits and cashflow over the next 2 years.
 
Expect jump of 90% in revenues and 61% in profits in 2014E: Ezion’s results should continue to sequentially improve as new contracts kick in.
 
Leverage will come down as robust FCF kicks in from 2014E: MER expects net debt / equity levels to come down from current 115% levels to 96% in 2014 and 80% in 2015 as significant FCF kicks in. MER expects gross cashflow to improve to US$382m in 2014E versus only US$137m in 2013 and further increase to US$501m by 2015.
 
Action and recommendation
Unique combination of growth and profitability: While the fleet size continues to grow (MER expects 37 SEUs by the end of 2014E), past contracts continue to drive robust profits and increasing returns.
 
Consensus continues to upgrade: Consensus got 2013 results wrong again (US$135m estimate versus US$143m actual) as it was too conservative on topline growth and margins. MER believes Ezion will continue to surprise the market with better than expected execution and higher than expected contract wins.

MER has an Outperform rating on Ezion Holdings with a 12-month target price of $2.80. The stock fell 0.4% to $2.30 yesterday.

Source: Macquarie Research - 21 Feb 2014