Ezion

Ezion: OSKDMG highlights that while Ezion’s share price retreated 12% last month on oil price-related jitters, the house maintain BUY with a $2.45 TP (from $2.50), still a 52.2% upside. The house reiterate that operations, backed by long-term contracts and oil majors’ opex, are well-insulated from oil price fluctuations. With a larger operational fleet today, rig delays have had a smaller impact too, think the market is not pricing in its 41-58% growth over FY14F-15F. Sold off on oil price jitters. Ezion’s share price has underperformed the market by 15% YTD (12% last month), with one of its biggest 1-day falls last Friday when Brent fell below USD90/barrel (bbl). Note a significant sell-off in oil and gas-related names in the last month, generally in the 15-25% range for shallow-water players and ~30-45% for deepwater plays. Ezion’s shares have been flat for most of the year, even though it has delivered on earnings growth and new charter contracts. The house believe a key investor concern is the recurrence of rig delivery delays, which has overshadowed the growth angle. Thus, trim FY14/FY15 earnings estimates by 7%/5% respectively to remain conservative. Moving into time charters with 42% ROE. Ezion’s latest service rig contract (Unit #38) was fixed at US$25.3m/year at a capital cost of USD90m. Calculate the ROE on this unit at 41.6%, far superior to the typical bareboat charter ROE of c.30%. Expect Ezion’s move into time charters to create more shareholder value. It also presents future valuation upside, should future contract renewals on existing assets include a switch from the current bareboat to time charters. As highlighted in our Shallow Water Is The New Onshore sector note, think investors should own high-growth, low-P/E shallow-water plays like Nam Cheong (NCL SP, BUY, TP: $0.58) and Ezion while eschewing deepwater ones like Vard (VARD SP, NEUTRAL, TP: $0.80). This theme remains valid today, with lower oil prices putting deepwater activity at risk. Believe Ezion’s rig delay issues should not prevent it from delivering c.41%/58% earnings growth in FY14F/FY15F, which are best-in-class growth rates for this sector.