Why Ezion's 14% share price drop is still good news

An ''opportunity to accumulate''.

According to OSK DMG, as Ezion’s share price has fallen 14% since its recent peak, we see this as an opportunity to accumulate. They believe concerns over the impact of rising interest rates on the Group is overdone.

Increasing awareness of its liftboat capabilities could herald in more contract awards, leading to more EPS upgrades for Ezion. Maintain BUY with a TP of SGD3.00, based on 16x blended FY13/14F EPS. Key risks are charter renewals and lower level of LNG activities in Australia.

Here's more from OSK DMG:

Net gearing rising, but supported by steady cash flow. We estimate that net gearing will rise to 1.14x by end-FY13. However, we are not concerned as the borrowings are backed by steady cash inflow of ~USD1.6bn from its liftboat and service rig chartering business.

Low downside risks to FY13-14F EPS even with no new charters. YTD 2013, Ezion has secured USD445m new charters vs USD1.12bn in 2012. Even in a scenario of zero new charters for the rest of 2013, we see little downside risk to our earnings projections as we have not factored in new charters apart from the contracts already announced.

49% EPS CAGR over FY12-15F. We are projecting FY13/14/15F net profit of USD117m/USD200m/USD243m, primarily driven by charter contracts secured in the past three years. Based on the current pipeline of contracts, Ezion’s fleet is set to expand from 15 units in 1H13 to 26 units by 1H2015.

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