Ezion Holdings: Results slightly ahead of forecast; re-iterate BUY (DMG)

(BUY, S$0.67, TP S$1.07)

Strong jump in core earnings; re-iterate BUY. 2Q11 core net earnings of US$12.2m (+6% QoQ +85% YoY) lifted 1H11 core net profit to US$23.7m (+96% YoY), and accounted for 52% of our FY11F estimate and 55% of consensus. Reported 1H11 net profit of US$34.7m included US$11m one-off gain from divestment of one liftboat. The strong results reaffirmed our positive view on the stock. Management plans to raise new capital by issuing perpetual capital securities and we believe this is done in anticipation of a new sizeable project. We keep our FY11-12F EPS estimates unchanged pending further details on the capital raising. We see scope for an upward revision in FY12F EPS. Our TP is unchanged at S$1.07 based on 12x blended FY11/12 P/E. Re-iterate BUY.

Higher utilisation of logistics fleet boosted earnings. The stronger earnings came on the

back of higher utilisation of its offshore logistics fleet. Utilisation level in 1H11 was ~85% compared to average utilisation level of ~75% level in FY10. Two liftboats were deployed in 2Q11 (one in 2Q10; two in 1Q11) and this is in-line with expectation. Ezion took delivery of its third liftboat in end Jun 2011 and we expect new contribution from 3Q11 onwards. The new liftboat is being deployed in South East Asia and Africa on a three plus two years contract.

Raising capital from SGD denominated perpetual capital securities. Ezion is raising new capital to prepare the company for potential projects in Australia but has not decided on the amount to be raised. We understand that the structure of the capital raising is somewhat similar to perpetual preference shares but the option to redeem the shares lies with the company. We have not factored in any impact of the capital raising at this juncture given the lack of details on the terms and deployment of the capital. In our view, the announcement of the capital raising exercise could mean that Ezion is close to winning a sizeable job.