Strong e arnings growth set to continue. Ezion will report its 3Q12 results on Tues, 6 Nov 2012. We expect core net profit of US$16m  (+32% YoY, +7% QoQ), with growth coming from full quarter contribution of Liftboat No. 5, which started a long-term charter with a  multinational oil company in Brunei from May 2012. We keep our BUY rating on the stock with an unchanged TP of S$2.02 based on  13x FY13F P/E. Stock is now trading at 7x FY13F P/E.

Comfort from big pipeline with locked in charter contracts. We estimate that Ezion has seven liftboats and services rigs on charter as of  end-Oct 2012, and the company will take delivery of three more service rigs in Nov and Dec 2012. The three service rigs have lined up  long-term charters with oil companies in North Sea (one unit) and Gulf of Mexico (two units). Based on the existing pipeline, Ezion will  end up with 19 units of liftboats and service rigs by end 2014.

Issuance of perpetual securities will ease gearing concerns. Ezion issued S$125m perpetual securities on 14 Sept 2012 and the  proceeds will be reflected in the 3Q12 balance sheet. As the perpetual securities will be accounted as equity, net gearing is estimated to  e maintained at ~0.6x.

Acquisition of YHM. The purchase of YHM, a Catalist board listed company, for S$5.8m with issuance of 4.6m new shares at  S$1.2454/share, a 10% discount to its VWAP traded price on 23 Oct, was not well received by the market given the hefty discount.  Although the number of shares to be issued is small at only 0.5% of the total shares, we believe Ezion could have made a direct cash  offer instead. Upon completion of the deal, Ezion will hold 44% stake in YHM. YHM will be a vehicle to undertake oil and gas projects  which are complementary to Ezion.

Maintain BUY. Our TP is based on 13x FY13F P/E and this is backed by strong three-year EPS CAGR of 32% over FY11-14F.

Source: OSK