Excerpts from analysts' reports

DBS Vickers says Ezion's valuations are compelling

pei hwa hoAnalyst: Ho Pei Hwa (left)

Spreading its wings to Malaysia through billionaire tycoon Tan Sri Quek Leng Chan.  
 Tan Sri Quek is extending his O&G acquisition spree to Singapore through the subscription of a 7.7% stake (100m new shares @ S$1.94/share) in Ezion via Hong Leong Company’s indirect subsidiaries.

We view this development positively as it underscores Ezion’s differentiating capabilities in the niche liftboat market, while potentially benefitting from Tan Sri Quek’s extensive network of resources and political connection.

This will accelerate Ezion’s market penetration in Malaysia, which has strong potential to be the first in Asia to endorse the use of liftboats.

ezion_chart4.14After a two-year run-up in its stock price, Ezion now has a market cap of S$2.6 billion. Its dividend yield is 0.05% only. Chart: FT.com 

Concerns on Ezion pouring money into E&P are unfounded.  Management has alleviated concerns over their recent move into E&P. JK Tech will likely acquire small producing oilfield assets and not greenfields from Ezion’s existing clientele. More importantly, Ezion would not be required to fork out more capital for JK Tech in the foreseeable future, eliminating our concern of stretching its balance sheet into a non-core business. 

Placement a precursor for contract wins. Post-placement, net gearing is expected to improve from 1.3x to 1.0x. We estimate that the US$150m will enable Ezion to take on 7-8 additional service rig projects and will eventually be accretive to EPS. Meanwhile, we are factoring in the enlarged share cap and lowering our TP to S$3.03 (14x FY14 PE). Valuations are compelling at 9x 12M rolling forward PE and 2.2x P/BV, despite a promising 2-year EPS CAGR of 44% that is backed by firm charter contracts of US$1.9bn (4x revenue coverage), and an astounding ROE of 24%. 

ezion_rig4.14Ezion specialises in the development, ownership and chartering of strategic offshore assets and the provision of offshore marine logistics and support services to the offshore oil and gas industries. Photo: annual report

JP Morgan has S$2.75 target for Ezion

Analysts: Ajay Mirchandani and Kumar Gaurav  

Investment Thesis
We remain Overweight on Ezion, as we expect strong liftboat demand due to aging platforms and increasing offshore construction activity.  

Ezion’s liftboat fleet is backed by bareboat charters worth more than US$1B that is set to see nearly 70% earnings growth into 2014.  

Among asset owners in Singapore, Ezion stands out as one of the cheapest stocks, at an FY14E P/E of ~10x currently.  

Our Dec-14 price target of S$2.75 is based on our SOTP valuation.  

Risks to Rating and Price Target
Downside risks include: (1) rising gearing; (2) capital needs to expand; (3) limited barriers to entry; and (4) yard delivery delays, which may delay earnings. 


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