Towards Financial Freedom
Ezion Holdings - Secures USD65m LOI To Provide Service Rig
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.
Recommendation Chart
Source: OSK
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