Ezion Holdings: Upside potential still available

By Low Pei Han
Wed, 30 Jun 2010, 08:51:31 SGT

Ezion Holdings (Ezion) is an offshore marine group with two main business divisions: 1) Chartering and offshore support services and 2) Marine services. It is the owner of a fleet of liftboats which it believes is the largest and most sophisticated class in the world. The group is one of the first to introduce the use of liftboats in Asia and the Middle East, hence it may be able to enjoy first mover advantage should demand for liftboats grow in the region. Ezion has a bareboat charter with Ezra with regards to its first liftboat. The group’s JV company has also secured a A$350m contract with Chevron for Australia’s Gorgon project to provide marine logistics vessels for 3.5 years. This is for the first phase of the development of a gas field, and there may be additional opportunities for the group in subsequent phases of development. We are initiating coverage on Ezion with a BUY rating with fair value estimate of S$0.81 (upside potential about 30%), based on 12x blended core FY10/11F earnings.

Owner of large sophisticated liftboats. Ezion Holdings (Ezion) is an offshore marine group with two main business divisions: 1) Chartering and offshore support services and 2) Marine services. It is the owner of a fleet of liftboats which it believes is the largest and most sophisticated class in the world. The group is one of the first to introduce the use of liftboats in Asia and the Middle East as liftboats were originally confined to areas such as the Gulf of Mexico and West Africa. Hence it may be able to enjoy first mover advantage should demand for liftboats grow in the region. Meanwhile, demand for liftboats in other parts of the world remains firm.

Liftboat demand in two main areas. Liftboat demand comes from two main areas: offshore oil and gas, as well as offshore wind farm work. Management is confident that the group is able to secure work related to offshore oil and gas based on high level of client interest. However, the group is also looking to cater to offshore wind farms. The latest liftboat that Ezion is building will be suitable for certain offshore wind farms that operate in relatively harsh weather conditions.

Secured work for some assets. Ezion has a bareboat charter with Ezra with regards to its first liftboat. It was delivered in 1Q10 and chartered out on a 3+1 year contract at a rate of about US$45,000/day. The liftboat is now working for ExxonMobil in West Africa. The group’s JV company, Offshore Marine Services Alliance (OMSA) also secured a A$350m contract with Chevron for Australia’s Gorgon project in May 09 to provide marine logistics vessels for 3.5 years. This is for the first phase of the development of a gas field, and there may be additional opportunities for the group in subsequent phases of development.

Initiating with BUY. Assuming smooth delivery of subsequent liftboats, Ezion should see further improvements in earnings. We have factored in a two to three-month delay for each liftboat to be conservative in our estimates. Greater-than-expected contract wins will also serve to boost our earnings estimates. However, we are also mindful of risks such as unexpected downtime. Still, as we are more positive on the group’s prospects, we are initiating coverage on the group with a BUY rating and fair value estimate of S$0.81 (upside potential about 30%), based on 12x blended core FY10/11F earnings.

Disclaimer for Research Report

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

Privileged/Confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of my company shall not be understood as neither given nor endorsed by it.

For and on behalf of OCBC Investment Research Private Limited:

Carmen Lee
Head of Research

Co.Reg.no.:198301152E