• Dominant market position
• 100m new shares to be placed out
• Maintain BUY but FV lowered

Secures US$78.7m of new charter contracts

Ezion Holdings announced two contract wins on 15 Apr 2014 with an aggregate value of US$78.7m. The first is a charter contract worth ~US$35m for the provision of a service rig to a Middle-Eastern state-linked company over a three year period in the Arabian Gulf. The second order entails a charter contract with a value of US$43.7m over a three year period, in which Ezion will provide a service rig to support a South Asian based national oil company in the Arabian Sea. Both service rigs are expected to be deployed by 1H15 after refurbishment and upgrading works. We estimate the ROE for the first and second contract to be 39.8% and 48.1%, respectively. YTD, Ezion has already secured US$260.3m of contracts, which underscores its dominant position in the service rigs market, especially in the Asia-Pacific region.

Hong Leong Company (M’sia) becomes substantial shareholder

Separately, Ezion also announced that it will issue 50m new shares each to Asia Fountain Investment (AFI) and GuoLine Capital (GLC) at S$1.94/share (gross proceeds of S$194m), which is a 8.9% discount to its last closing price prior to this announcement. The 100m new shares to be issued represent ~7.7% of Ezion’s enlarged share capital. AFI is an indirect wholly-owned subsidiary of Guoco Group, which is in turn an indirect subsidiary of Hong Leong Company (Malaysia) Berhad (HLCM). GLC is an indirect wholly-owned subsidiary of HLCM. The Chairman and CEO of HLCM is Tan Sri Quek Leng Chan. Ezion believes it will be able to tap on his vast experience and network, and has plans to increase its penetration into the Malaysian oil and gas market.

Lower EPS forecasts on dilution; but maintain BUY

We lift our FY14 core PATMI forecast by 3.4% on slightly higher margin assumptions. Our FY15 revenue and core PATMI forecasts are raised by 6.5% and 8.8%, respectively, as we take into account Ezion’s recent contract wins. However, we pare our FY14 and FY15 core EPS projections by 6.2% and 3.5%, respectively, to factor in the dilution from this new shares issuance. Maintain BUY on Ezion, albeit with a reduced fair value estimate of S$2.41 (previously S$2.57), still pegged to 12x FY14F core EPS.

Source: OCBC Research - 17 Apr 2014