Investment case.

Albeit we see a moderation in E&P spending growth in 2014, we expect oil companies to increase their focus on cutting cost and improve shareholder returns. One of the main value propositions for oil companies in hiring self elevating units (SEUs) is cost-efficiency, as it reduces downtime of production wells and reliance on barges. With a fleet of 31 SEUs (including underconstruction), we believe Ezion could emerge as a relative winner in the oil service sector due to its favorable exposure to the under penetrated SEU market outside the US. According to industry specialist Kennedy Marr and Infield Systems, while there are 250 SEUs in the US to support 3,257 offshore platforms, there are only 62 SEUs in Southeast Asia, Middle East and West Africa combined to support similar amount of platforms. In addition, out of its 31 SEU contracts secured for Ezion, only 17 of them have started contributing as of end FY13. With another 9 units beginning operation in FY14, 4 in FY15, and 1 in FY16, we believe earnings momentum will continue over the next 2 years (see sector report “Offshore sector turning less positive”, for more discussion on the Offshore Marine sector outlook).

Valuation and recommendation.

Ezion Holdings is trading at FY14E/15E P/E of 9.2x/8.3x. Our estimates remain intact. We maintain our Accumulate recommendation and our target price of S$2.57, still based on SOTP valuation.

Source: Phillip Securities Research - 7 Apr 2014