Ezion Holdings: Strong growth on track despite volatile market (DMG)

(BUY, S$0.56, TP S$1.02)

Maintain positive view on the stock. We recently met with management and re-iterate our

BUY rating on the stock: (1) Share price has fallen 20% since end Jul 2011, tracking the fall in FTSE SG Small Cap Index. We see no change in fundamentals as FY11-13F earnings are

backed by long term contracts from its liftboats and steady contribution from the logistics

division. We expect +28% EPS CAGR over FY11-13F; (2) Management continues to deliver

strong growth as more liftboats are deployed. We estimate 3Q11 core net profit to improve to

~US$13.5m (+10% QoQ, +60% YoY) with the addition of one new liftboat in end-Jun 2011. We

revised our TP to S$1.02 based on 12x FD FY11/12F EPS. Key catalysts are new contract

awards and continued delivery of strong quarterly earnings. Maintain BUY.

Positive feedbacks from Asia-Pacific clients on liftboat. In the past three months, Ezion has deployed its Liftboat 4 to Vietnam, Indonesia and Malaysia for paid trials to gauge interest in the asset. Feedbacks are positive and management plans to use the liftboat in Asia-Pacific on long term time charter. While Ezion currently enjoys strong demand for its liftboats in Africa and Middle East, we see significant market potential in Asia Pacific given the high number of ageing platforms in the region.

Update on existing businesses; minor changes to FY11-12F EPS: (1) Liftboat Five and Six

are scheduled to be ready in Mar 2012 and May 2012 respectively. The deliveries are delayed

by one month due to late delivery of critical items. (2) The refurbishment of a service rig to be used in the North Sea is one month ahead of schedule and could be deployed by early Dec 2011. We have revised our FY11-12F earnings by +2% and -4% respectively.

New competition for Northern Territory marine supply base. Upstream reported that a

consortium led by Aberdeen-based Asco has won a bid to develop a marine supply base in

Australia’s Northern Territory. The new site will compete against Ezion’s Melville Island supply base. We believe it is too early to ascertain the amount of competition in that area as the various projects remain at the planning stage. We have not factored in any contribution from the marine supply base projects.