US$116.8m  charter  contract  for  four  years.  Ezion  has secured  a  Letter  of  Intent  (LOI) from a South East Asian state-linked company to charter a liftboat. This is a new customer for Ezion. The bareboat LOI has a primary charter period of three years plus option for one more year. The newbuild liftboat will be based on a new generation design by Levingston. As one of the requirements in the LOI, the liftboat has to be built at a state-owned shipyard in the country of operation. Ezion will sign a turnkey contract with the shipyard.

US$110m capex for the new liftboat. The capex will be financed using US$27.5m equity and  US$82.5m  debt.  The  equity  portion  will  be  paid  in  the  next  six  months  while  the balance  will  be  paid  upon  delivery  of  the  asset  in  4Q2014.  The  new  liftboat  will  increase Ezion's fleet to 21 units by 2015. The fleet will be a mix of 11 service rigs and 10 liftboats.

We estimate US$16m net profit contribution p.a. from FY15 onwards. We estimate the bareboat LOI to generate an annual net profit of US$16m. Our assumptions are based on an  annual  revenue  of  US$26.3m  (90%  uptime),  depreciation  over  20  years,  5%  effective interest  rate  and  2%  withholding  tax  (on  revenue).  Our  calculation  implies  an  attractive project payback (unlevered) of 5.0 years.

Fund  raising  via  perpetual  securities  and  sale-and-leaseback. Ezion is positioning its balance  sheet  for  more  jobs  and  management  is  exploring  several  fund  raising  options including  the  issuance  of  more  perpetual  securities  and  sale-and-leaseback.  Since  the issuance  of  the  S$125m  7.8%  perpetual  securities  back  in  Sept  2012,  Ezion  has  won US$549m new charters (including Ezion's portion in two JVs).

Valuation:  Maintain  BUY  with  an  unchanged  TP  of  S$2.16.  We  keep  our  FY13-14F EPS  estimates  unchanged  as  the  new  charter  will  start  in  1Q2015.  We  value  Ezion  at S$2.16 based on 13x FY13F fully diluted EPS. This implies 16% upside from its last price. Key downside risks are cost overrun and inability to maintain high fleet utilisation.

Source: OSK