Ezion Holdings - Lifting profits further (DBSV)

BUY S$0.62 STI : 2,811.58

Price Target : 12-Month S$ 0.96 (Prev S$ 0.92)

Reason for Report : Earnings/TP revisions

Potential Catalyst: Contract wins

DBSV vs Consensus: Our EPS estimates are lower than consensus on lower margin

• 3Q11 above on higher-than-expected liftboat contributions

• Liftboats gaining traction in SE Asia; regional NOC has time chartered 2 units with 2nd unit to be added by mid-2013

• FY12/13F cut 3%/12% as marine base contributions removed, partially offset by new liftboat in 2013

• Maintain BUY, TP S$0.96

3Q11 above. Ezion delivered core 3Q11 PATMI of US$12.9m (+69% y-o-y, +6% q-o-q), slightly ahead of expectations. This was mainly on higher contributions from liftboat #4, which commenced operations within the period.

Liftboats gaining traction within the region. Separately, Ezion announced that it has commenced a time charter of Liftboat #4 to a SE Asia based NOC for the maintenance of offshore platforms. Ezion has also secured a 5-year LOI for a time charter from the same customer for an additional liftboat, worth US$94m. This unit will be Ezion’s 7th unit, with delivery in mid 2013 and to cost c. US$60m. We see these developments as Ezion’s further ascent up the value chain, from pure asset owner to operator.

Contributions from marine bases removed. Given the lack of progress over the development of the marine bases, we have removed all earnings contributions and associated capex/debt from our earnings model. This would be reinstated when there is better clarity. We understand that minimal costs have been incurred on these projects to date, which have already been expensed, implying limited risk to earnings going forward.

FY11-13F adjusted. Given the strong 3Q11, our FY11F is tweaked +1%, while FY12/13F are cut by 3%/12% from removing the marine bases’ contributions. Partially offset by Liftboat #7 which should kick in from 2H2013 onwards, Ezion is still projected to post healthy FY11-13 EPS CAGR of 27%. We estimate that our FY11-13F profit before tax are 97%/75%/76% backed by secured contracts/ LOIs.

Maintain BUY, TP S$0.96. Our TP is adjusted to S$0.96 as we roll forward our valuation to FY12 (prev : blended FY11/12), pegged to 9x PE in line with its historical average. Ezion remains our top pick among the small/mid cap O&M names for its consistent earnings delivery, visible diversified earnings stream, undemanding valuations and continued progression up the value chain. Maintain BUY.