Here's why Ezion will remain robust this year

It's current orderbook is now at US$290m.

According to DBS, Ezion has secured a charter contract worth US$48.2m over three years to provide a service rig for an international oil company in the Arabian Gulf region.

DBS adds that the service rig is expected to be deployed as an accommodation unit in shallow waters and the contract duration of three years implies a day rate of US$44,000. The rig should be ready for deployment before the end of 2013 after undergoing upgrading and refurbishment works. This is Ezion's fourth charter contract for 2013, bringing YTD contract wins to US$290m.

Here's more:

The total project cost is estimated at US$40m. This includes the cost of the old jack-up unit (which was cold-stacked in the same region, hence no mobilisation costs) of slightly less than US$20m plus more significant upgrading and refurbishment works estimated at above US$20m.

The total project cost will be funded by 30% equity/70% debt (proceeds from recent placement will help fund the equity portion).

We estimate net gearing to step up to 0.88x by end-FY13 (previous estimate 0.83x), but moderate to ~0.70x by end-FY14 as operating cash flows continue to kick in from new projects.

Raised FY14F earnings by 3.5%. The economics of the project look good, with lower upfront investment costs and operating costs, and we estimate this contract to generate high ROE of close to 58% with 52% EBIT margins, and yield US$7m net profit annually.

No impact to our FY13F numbers, but our FY14F net profit estimate is raised by 3.5% after including contribution from this latest contract win.

Maintain BUY, TP adjusted up to S$2.42. In line with higher FY14F EPS, our TP is consequently revised up to S$2.42 (prev. S$2.38), still pegged to 12x blended FY13/14 PE.

With a fortified balance sheet – following the recent issue of new shares and the divestment of its stake in the OMSA JV – and a robust pipeline of potential projects, we believe Ezion will continue to grow its project backlog and earnings stream.

Maintain BUY for its high earnings visibility and undemanding valuations of 13x/ 8x FY13/14 PE against a solid FY12-14F estimated EPS CAGR of 67%.

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