OIR BITES: Ezion secures US$86.3m service rig contract; keeps momentum going

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.13

OIR BITES: Ezion secures US$86.3m service rig contract; keeps momentum going 6 Jun 2012

We attended Ezion's analyst briefing this morning following its trading halt earlier. Here are the key takeaways: Service rig contract The company has secured a charter contract worth about US$86.3m over a four-year period to provide a service rig for use by a national oil major in Central America. This will be the group's third rig to be deployed in the Sonda de Campeche field, and we believe the customer is likely to be Mexico's PEMEX. Ezion will be buying an old rig (Ensco 59) which it will then refurbish and upgrade at Gulf Copper's Galveston facility in the US. We estimate total project cost of US$55m (rig: S$23m, refurbishment, upgrading: S$32m), depreciation period of 10 years, and interest cost of 5% over five years. Ezion's European partner will undertake maintenance work (est. US$4.5-5m cost) and there is also a withholding tax for Ezion in this contract. Our calculations show that this project will not be as profitable as the typical newbuild liftboat contract, but ROE is still good at about 40%. Australia logistics projects The Australian logistics projects are progressing well (Gordon LNG and Queensland Curtis LNG), and Ezion is currently tendering for a third area (APLNG) for logistics contracts. Results should be known by end Jul this year. Ezion's service rig contract momentum has kept up, with the group announcing one almost every month since the start of this year. With the group's newly established S$500m note programme and placement proceeds of S$94.6m earlier this year, we do not foresee further fund raisings in the near term. Maintain BUY with S$1.13 fair value estimate.

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Company Registration No: 198301152E