Towards Financial Freedom

Ezion Holdings - Secures USD65m LOI To Provide Service Rig

kiasutrader
Publish date: Tue, 29 Oct 2013, 10:06 AM
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EZI  has  secured  a  new  LOI  (total  value  of  up  to  USD65m),  for  the provision of a service rig. We view the news positively,  as the rig could add USD3.3m per annum on a full-year charter. This is  its  ninth liftboat and  service  rig  LOI/contract  in  2013  and  EZI  is well-positioned  to win more.  We  like  the  stock  for  its  strong  earnings  growth  and  attractive valuation at 7.9x FY14F P/E. Maintain BUY and SGD3.18 TP.
  • Three-year  charter  worth  up  to  USD65m.  EZI  has  secured  a  new Letter of Intent (LOI) from an  oil major to provide a service rig for three years in South-East Asia. The contract is expected to start in 3QCY15 and EZI will form a joint-venture (JV) company to order and own the rig.
  • Strong visibility from USD1.9bn charter backlog. We understand that the 50:50 JV will own the  rig with an estimated project cost of USD60m. We estimate the latest LOI raised its YTD new charter wins to USD584m (attributable  to  EZI).  Ever  since  the  company  started  the  liftboat  and service  rig  business,  it  has  won  USD2.2bn  worth  of  charters,  with  an average contract tenure of 4.3 years. We estimate a current backlog of USD1.9bn (including optional extension), which will run up to 2020.
  • Positive impact on FY15 earnings. EZI will enjoy two source of income from  this contract  -  income  from  operating  the  service  rig and  income from ownership  of the asset under the JV. We  estimate  the  LOI  could add USD3.4m net profit on a full-year  charter.  We  are  maintaining  our EPS estimates given insignificant impact (<1%) in our forecast period.
  • Room  for  more.  Demand for  liftboats  and  service  rigs  remains  strong and  we believe the rising acceptance by oil majors in  the region  could lead to more deployment  opportunities.  We estimate  EZI  has  room  for USD200m/USD500m  new project capex in FY14/15  respectively,  while keeping  its  net  gearing  at  around  1.1x.  This  excludes  any  issuance  of equity or perpetual securities.
  • Re-iterate  BUY,  with  SGD3.18  TP.  Our  TP  is  based  on  16x  blended FY13F/14F  P/Es.  Key  re-rating  catalysts  are  the  company's:  i)  EPS upgrades from new contracts, and ii) positive earnings momentum.

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Source: OSK
Ezion (5ME)
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