Listing of Gulf Marine Services further affirms attractiveness of Ezion’s valuation. Reiterate BUY with TP trimmed to SGD2.90 on contract schedule adjustments.

Liftboat market remains underpenetrated outside the Gulf of Mexico, especially in Southeast Asia.

New entrants and competition would induce higher liftboat adoption rate, providing net benefits for Ezion.

What’s New

Gulf Marine Services’ (GMS) recent listing in London suggests Ezion is still attractively priced. Given the infancy of liftboat adoption in Asia and the Middle East, where penetration rate is still low, we believe worries about the prospect of competition are unfounded. Ezion, as the first mover into the market and the largest player in Southeast Asia, has been creating its own demand and would continue to do so as it expands its sphere of influence.

What’s Our View

We see an increase in penetration rate as one of the key drivers of growth in regional liftboat demand. Our analysis shows that every 1ppt rise in penetration rate in 2020 would result in incremental demand for five more liftboats. This is on top of the 36 units that would be required from 2013 to 2020 as a result of organic growth in offshore oil platforms, assuming a conservative and fixed penetration rate of 24%. In our view, more entrants into the liftboat market would induce wider adoption, providing net benefits for Ezion.

Recently listed Abu Dhabi-based liftboat player, GMS, last traded at implied valuations of about 11.7x FY14E P/E and 2.5x FY14E P/BV. Ezion still looks relatively more attractive in comparison. And with the latter’s share price at 13% off its high of SGD2.43 on 22 Jan 2014, we think the time is ripe to accumulate the stock. We adjust our FY14E/15E net profit by -3%/+6% on changes to contract start dates and introduce FY16E forecasts. Reiterate BUY with a lower TP of SGD2.90 (from SGD3.00), pegged at 13x FY14E P/E.  

Source: Maybank Kim Eng Research - 20 Mar 2014