Towards Financial Freedom
Ezion - USD80m Contract Boosts FY14F EPS
EZI has received a Letter of Intent (LOI) from a national oil company to provide a service rig for four years for USD80.3m, which will be fully funded by new bonds. In light of this development, we revise our core EPS for FY13F/FY14F by -2%/+3.5%. We also upgrade our TP from SGD2.48 to SGD3.00 as we roll forward the stock's blended FY13F/FY14F EPS, pegged to an unchanged 16x P/E. Maintain BUY.
- Sixth charter win in 2013 brings total to USD445m. The latest LOI lifted the value of Ezion Holdings (EZI)'s YTD charter wins to USD445m. The service rig, which will be deployed in South-East Asian waters for a national oil company, is scheduled to start operating by December.
- LOI may add about USD5.6m in net profit pa. The project cost for the refurbished service rig, estimated at USD60m (USD40m for asset acquisitions and USD20m for refurbishment), will be fully funded via the issuance of a new six-year bond. We estimate the charter to contribute USD5.6m in annual earnings from FY14 onwards. The project's cash flow payback is estimated at four years, with an implied ROA of 14%.
- Debt rises but long-term charters offer comfort. As EZI will fund the project via new bonds, we expect its net gearing to rise from 1.0x to 1.14x at end-FY13. While we are mindful of its rising debts, we are comforted by the nature of its business model, which is reliant on longterm charters from national oil companies and oil majors. Assuming the absence of new projects, its net gearing will fall to 0.93x by end-FY14F.
- Prefer to add new units to manage its gearing. Its fleet of liftboats and service rigs will expand from 12 units currently to 26 by 1Q15. Management is looking to add more units to its fleet, which will take longer to build and will only likely to make an impact in FY15F.
- Re-iterate BUY, TP higher at SGD3.00. We raise our TP by 21% to SGD3.00 vs SGD2.48 as we roll forward its valuation to a blended FY13/14F EPS on an unchanged 16x P/E. Our mid-teens target P/E is buoyed by strong net profit CAGR of 55% from FY13F-FY15F. At our TP, the stock is valued at 16.0x/11.5x FY13F/14F P/Es.
Source: OSK
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