Ezion Holdings (DMG)

Ezion Holdings: JV secured US$73m Denmark jackup rig deal (BUY, S$0.645, TP S$1.07)

Third major contract YTD; re-iterate BUY. Newsflow on new job wins remained strong as Ezion bagged its third major contract of the year. Ezion’s 50:50 Joint Venture (JV) with Treatmil Holdings, a European offshore service company, has secured a four-year charter contract worth US$73m from a European oil major in offshore Denmark and project will start by end 2011. We expect the contract to contribute US$5.5m to FY12F net profit. However, we have cut contributions from marine supply base projects due to further delays. Net impact on our FY12 EPS is ~1% higher than our previous estimates. Maintain BUY with an unchanged TP of S$1.07 based on 12x blended FY11-12F fully diluted EPS.

US$73m contract to begin by end-2011. The Ezion-Treatmil JV (Atlantic Labrador) will acquire, refurbish, upgrade and mobilise the accommodation jackup rig to the North Sea before end 2011. The JV will use an old jackup rig (>25 years old) purchased from Transocean called GSF Labrador and conversion of the rig will be carried out at a yard in Holland. Total project cost is estimated at US$85m. This the third major contract secured by Ezion after the US$109.5m time charter for one liftboat (announced on 24 Feb 2011) and the US$109.5m (announced on 5 April 2011) for the Alaska jackup rig (JV with Buccaneer). We understand that there are more such opportunities out there and management is keen to explore this type of projects given shorter time to market vs. newbuilds.

Separately, there could be more delay to the marine supply bases. We believe that there is further delay for the two marine supply bases in Australia given difficulty in finalising the development plans and regulatory hurdles and the projects are not likely to contribute in 1Q12 as we have initially expected. Hence, we are taking out our earnings estimate for the two projects until there is more clarity on when the project will start contributing. We still expect to see strong core net profit growth of 48% in FY12 mainly from its liftboat business and rigs.