Ezion Holdings (KE)

Event

Ezion posted strong 3Q11 numbers, with net profit up 71% YoY to US$12.9m, and a 6% improvement sequentially. This was slightly ahead of our expectation. The company also announced new liftboat contracts with Pertamina for operations in offshore northwest Java. Overall, it is making excellent headway and the low stock valuation simply does not reflect its positive prospects. Maintain BUY with a target price of $0.99.

Our View The improvement in 3Q11 came mainly from increased chartering contribution from its fourth liftboat. However, there was a one-off improvement in pricing as it was undergoing paid evaluation trials with several national oil companies in the region for almost three months, with a view to securing contracts with these customers. A write-down of its A$ exposure for about US$1m should at least be partially reversed in 4Q11.

As a direct result of the evaluations, Ezion has secured a charter for the same liftboat with Pertamina for three years at an annual rate of around US$18m. Note that the rate is a time charter, as opposed to Ezion’s usual bareboat

arrangements. Hence, the revenue generated will be higher. However, this will be offset by increased operating expenses, which also result in a lower margin. Ultimately, base profits are maintained.

Pertamina has also signed a letter of intent to charter an additional liftboat for up to five years for approximately US$94m. Ezion is embarking on the construction of its ninth liftboat and the charter is due to commence upon completion of construction in mid-2013.

Action & Recommendation

Ezion is on track to achieve our three-year earnings CAGR of 30% pa to FY13. We have not yet factored in the contributions from the ninth liftboat until the vessel is substantially completed. Even with its recent share price recovery, Ezion is still trading at very low valuations despite the impressive growth numbers. We are leaving our forecasts unchanged for now, but there is scope to raise our numbers as Ezion is negotiating more ventures for its liftboats, as well as more contracts for its logistics supply businesses in Australia. The stock remains a strong BUY with a target price of $0.99.