Wednesday, September 26, 2012

Ezion

Ezion: Likely positive sentiment to continue after a series of Price upgrades following latest contract wins: CLSA raises TP to $1.90 from $1.70, with Conviction Buy Call. DMG raises TP to $2.02 from $1.37. CIMB raises TP to $ 1.65 from $1.19. DMG Insti sales in a note firmly believes Ezion remains one of the great structural growth stories, and believe that analysts are behind the curve and will continually be forced to raise their numbers and chase this stock. Add that the stock does not seem to want to pull back and despite the strong performance YTD house still a buyer at these levels. Do miss the boat for the small matter of penny pinching. Bite the bullet and get some on board. Trading on 7x 2013 PE and with an ROE in excess of 20% with huge EPS growth, remain very comfortable with this call. Although not disclosed, suspect the Southeast Asian based NOC to be Petronas could potentially lead to more liftboat deployment opportunities for Ezion in Msia, a mkt that had historically been closed to them because of the local procurement requirement. Believe that Ezion will announce a JV with a local partner in the near future, and thus open up an lucrative mkt to them that had previously been shut. CLSA add that with strong demand and limited competition, house remain confident that Ezion is likely to announce more projects over next two quarters which will provide positive catalysts for the stock. Deployment of proceeds from the perpetual issue may result in another 3-4 liftboat/service rig contracts. S$125m perpetual issue in early September has provided Co. enough balance sheet strength to pursue aggressive capex plans which house believe is important as the coy needs to build up scale before competition comes in. Currently factoring in US$1.1bn in capex over FY12-14 but can accommodate another US$200-250m in capex over FY13 to support its expansion while still maintaining comfortable gearing levels (around 100%).

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