EZION HOLDINGS (DMG)

BUY

Price S$0.645

Previous S$1.07

Target S$1.07

Ezion is involved in the provision of offshore and marine logistics and is owner of one of the largest liftboats in the world.

JV secured US$73m Denmark jackup rig deal

Third ma jor 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.

 The contract value of US$73m over four years implies a daily charter rate of US$50k/day or US$18.3m per annum. The rig will be on bareboat charter to the operating company owned by Treatmil Holdings and the end-customer is a European oil major operating offshore Denmark. We believe that the undisclosed oil major is Maersk.

 The rig will cost US$85m (rig cost US$53m, conversion US$30m and contingency US$2m) and will be funded by US$55m debt and US$30m equity. Financing for the project is expected to be given by a domestic bank. The JV has been offered a five-year loan with effective interest rate of around 5% for the US$55m loan.

 The project cost of US$85m will be amortised over a period of 20 years, equivalent to US$4.3m per annum.

 The jackup rig to be converted is a Transocean rig called GSF Labrador and is more than 25 years old (based on data from Rigzone).

 The project has a very tight timeline as the accommodation jackup rig is expected to be operational by end 2011.

 Conversion of the project will be carried out in Holland at the Scheldepoort shipyard. The conversion work includes removal of the drilling package, conversion of the existing cabins into 140 single man cabin to meet North Sea standard, fire fighting equipment in accordance to North Sea standard, tubular inspection and repair, installation of lifeboats in accordance to North Sea standard, engines overhaul, cranes upgrades, upgrade of all major service equipments to meet the work requirement in the North Sea.