Posts another steady quarter. Ezion Holdings (Ezion) reported a 8.1% YoY decline in revenue to US$31.9m but registered a 27.3% rise in gross profit to US$15.8m in 3Q11, such that 9M11 figures represented 73.6% and 74.3% of our full year estimates, respectively. Net profit rose 70.8% YoY (+6.0% QoQ) to US$12.9m in the quarter, slightly above our expectations, supported by a higher operating margin of 37.0% versus 20.6% in 3Q10. 9M11 net profit met 85% of our full year estimate, but this was bumped up by a one-off disposal gain in 1Q11. Gross profit margin was higher at 49.7% in 3Q11 versus 35.9% in 3Q10 as contribution from the lower-margin Marine services division was significantly less in 3Q11 (estimated ~US$3-5m). Meanwhile, finance income rose from US$17k in 3Q10 to US$811k in 3Q11 due to higher interest income from bank deposits and loan to JVs.
4th liftboat deployed to Java Sea. Ezion also announced that its 4th liftboat has been deployed for maintenance of offshore platforms in the north-west region of the Java Sea. The customer is a SE Asian based national oil company, which is likely to be Indonesia's PT Pertamina. This will be the first time a liftboat is allowed to work in Indonesia, given that such assets are relatively less sighted in this region. As the unit had to undergo certain modifications (e.g. altering the spud cans), we are estimating an approximately US$1m cost to Ezion which should impact 4Q11 results. We estimate that the vessel had a utilisation rate of 60-65% in 4Q11.
LOI secured for 9th liftboat. The same national oil company has awarded a letter of intent (LOI) to charter an additional liftboat for up to five years. The contract value is about US$94m and work is expected to commence in mid 2013. According to management, responses from potential customers in this region have been favourable from preliminary vessel trials.
Maintain BUY. According to the group, demand for its service rigs remains strong and it therefore intends to make further investments in this area to meet market demand. Meanwhile Ezion intends to continue to support LNG-related projects in Australia and its vicinity. After tweaking our earnings estimates (including increasing our forecast for finance and other income), our fair value rises from S$0.86 to S$0.97 (based on 10x FY11/FY12F EPS). Maintain BUY.
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