Ezion Holdings (KimEng)

Event

Ezion’s share price has declined by 32% over the past month, while the Straits Times Index has fallen by a less precipitous 9%. However, its fundamentals remain rock solid and probably the best in the offshore services sector. Earnings will be boosted by contributions from liftboats, while prospects are looking even better than ever. Selling pressure on the stock may continue as it is widely held by institutional investors who may be looking to exit the regional markets. However, with a core PER of just 4.0x, Ezion looks to be an attractive BUY. Our target price stands at $0.99.

Our View

Ezion’s liftboats are generating solid earnings and continue to be in demand. We understand that the liftboats are still attracting strong interest from several regional state‐owned oil companies eager to get their hands on this asset for their operations.

Ezion’s windfarm‐specific variant is also attracting further interest from a North Asian customer, while its latest liftboat, the accommodation jackup, is set for deployment ahead of schedule in the North Sea. It is already receiving praise from customer Maersk, and management said there could be significant interest from other customers.

Upstream recently reported that ShoreAsco has been selected as the preferred bidder to operate a mega‐scale marine supply base in Darwin, Australia, that could eclipse Ezion’s own planned marine base. However, we note that the A$0.5‐1.0b project has yet to receive several key approvals including federal and environmental consent. At any rate, we have not factored in any contributions to Ezion’s earnings and potential contributions will be small, relative to its liftboats and supply boats.

An overhang for Ezion’s share price is that Ezra continues to hold a 14% stake in the company. With Ezra’s own fund‐raising intentions such as its perpetual capital securities and a potential London dual listing likely put on hold, the worry is that Ezra may raise cash by selling its stake in Ezion. However, we believe that Ezra is not keen to sell at current valuations.

Action & Recommendation

We see no reason to change our FY11 forecast of 42% net earnings growth. Our target price of $0.99 is based on PEG of just 0.5x or FY11F PER of 12.5x.