Second strategic placement in as many months. The placement of new shares to EDBI is the second strategic placement in the past two months. The first strategic placement of 20m shares (10m shares from CEO, 10m new shares) to Tan Boy Tee in Nov was sealed at  an  average  price  of  S$1.197/share,  10%  discount  to  VWAP.  We  believe  the  entry  of EDBI enhances Ezion's growing reputation in the oil and gas industry.

Subscription  comes  with  tag-along  rights.  Ezion's CEO, Chew Thiam Keng, entered into an agreement in which he will grant EDBI tag-along rights to dispose the new shares on a 1-on-1 basis if he sells his shares through an off-market transaction. The rights will be effective in the event that Chew Thiam Keng's stake in Ezion falls below 150m shares. He now owns 158m shares (17.6% stake).

Impact: Small EPS dilution; deal allows room for further expansion. We estimate the latest placement will dilute FY12-13F EPS by 1.5% and lower FY13 net gearing from 1.0x to  0.96x. We  also  noted  that  pre-placement  share  base  has  risen  to  884.7m,  suggesting that most of the REPS (S$35m outstanding as of 3Q12) were converted in 4Q12. With the recent placements, we estimate that Ezion can afford to invest up to US$250m for assets to  be  delivered  in  FY14  without  large  raising  equity.  Alternatively,  Ezion  can  grow  its earnings with JVs or use sale-and-leaseback to unlock capital for fast-tracked projects.

Valuation: Stock still looks attractive at 9x FY13 P/E. We lower our TP from S$2.20 to S$2.16 to reflect the dilution. Our TP is based on 13x FY13 FD EPS. Ezion is our top pick for 2013 with estimated net profit growth of 96% in FY13 and 33% in FY14.

Source: OSK