Last Thursday, offshore and marine name Ezion Holdings reported a robust 26% year-on-year (YoY) jump in profit to $45.5mn for its second quarter of 2014 results.

Consequently, Macquarie Equities Research (MER) now sees a 42% upside in Ezion’s share price from current levels as the company delivers 37% profit compounded annual growth rate (CAGR) over 2013-2016, which should lead its price-earnings multiple to compress to 7.1 times in 2015E and 6.0 times in 2016 (based on Ezion’s share price of $2.11 at time of the report). MER’s estimates for 2015 and 2016 are 7% and 12% ahead of consensus.

Results highlights
Strong profit growth; on track to meet full year estimates: In the first half of 2014, Ezion has now delivered S$90.7mn (+10%) profit growth, on track to meet MER’s full year estimates of S$213mn.
 
Bonus shares issued: Ezion announced a 1:5 bonus share issue, the book closure date for which has not been announced yet. This will increase Ezion's current issued and paid ordinary shares count of 1,315.7mn by an additional 263.1mn shares.
 
Fleet size up to 36 vessels: Ezion won 7 new contracts in the first half of 2014, thus taking its fleet to a robust 36.
 
Profits will be chunkier in 2H14: Ezion is due to deliver 6 vessels in the second half of 2014, which will boost its revenues and profits significantly on a half on half basis.
 
Looking forward
19 out of 36 vessels have not contributed to FCF, P&L yet: Less than half of the fleet has accounted for the current revenues and profits. Thus, profit levels are bound to at least double from current levels as these 19 vessels are delivered in the course of next 24 months.
 
Contracts run until 2022; Cash flows secured: Only 6 of 36 vessels’ contracts are expiring by end-2015E. Most vessels have 5-7 year contracts.
 
MER’s action and recommendation
MER has an Outperform recommendation on Ezion Holdings with a 12-month target price of $3.00. MER believes that Ezion is a value buy with risk-reward strongly in favour. MER believes the current share price does not reflect the pace of fleet growth, impending profitability and reduced leverage. MER recommends Ezion for long-term value buyers.

Source: Macquarie Research - 5 Aug 2014