Towards Financial Freedom
Ezion Holdings - Secured USD48.2m Charter Contract
Ezion secured its fourth charter contract of 2013, lifting its YTD new charters to USD290m. The latest contract to provide a refurbished service rig for three years in the Arabian Gulf is valued at USD48.2m. The charter is expected to start in 4Q2013. We believe Ezion can easily fund the USD12m equity portion from its internal cash flow but net gearing will increase to 1.05x by end-FY13 (from 0.95x). We revised FY13-14F EPS by -0.1% and +3.6% respectively on the new contract. Maintain BUY with a TP of SGD2.48, which is based on 16x FY13F P/E.
Three-year charter contract valued at USD48.2m. Ezion secured a threeyear charter contract from an international oil company to provide a service rig in the Arabian Gulf. The contract came from an existing customer. The service rig will be a refurbished unit and is expected to be deployed in 4Q2013. The service rig will be used by the client as an accommodation unit.
A high return charter. We estimate this contract to generate an annual net profit of USD7.1m based on: i) USD40m project capex funded by USD28m debt and USD12m equity; ii) annual revenue of USD16m; iii) 10-year depreciation profile which is equivalent to USD4m per annum; iv) annual operating cost of USD3.5m; and v) annual interest expense of USD1.5m. The ROE and ROA are estimated at 59% and 17% respectively.
Impact: Revised FY13-14F EPS by -0.1% and+3.6% respectively. We factor in one month revenue from the new charter in FY13 and full contribution in FY14. The changes reduced FY13F EPS by 0.1% due to interest incurred to fund the refurbishment but lifted FY14F EPS by 3.6%. We estimate net gearing will increase from 0.95x to 1.05x by end-FY13.
Valuation: Maintain Buy with an unchanged TP of SGD2.48. Our TP is based on 16x FY13F EPS. We like Ezion for its high earnings visibility, strong net profit growth of +82% and +58% for FY13-14F respectively and ability to capture the rising demand for liftboats and service rigs. Key risks are project delays, cost overrun and inability to renew charter contracts for older rigs.
Source: RHB
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