fye fy11 fy12 fy13e fy14e key financial...

MCI (P) 194/11/2012 Ref. No.: SG2013_0132 1 of 23

Ezion Holdings Ltd

First-mover in Asia liftboat market paying off Bloomberg │ Reuters │ POEMS

EZI SP │ EZHL.SI │ EZHS.SG

Industry: Offshore Marine

Phillip Securities Research Pte Ltd

5 August 2013

Report type: Initiation Ezion Holdings Ltd

Rating 2 Accumulate

- Previous Rating n.a. Not Rated

Target Price (SGD) 2.71

- Previous Target Price (SGD) n.a.

Closing Price (SGD) 2.270

Expected Capital Gains (%) 19.4%

Expected Dividend Yield (%) 0.0%

Expected Total Return (%) 19.4%

Raw Beta (Past 2yrs w eekly data) 1.65

Market Cap. (USD mn / SGD mn) 1718 / 2178

Enterprise Value (USD mn / SGD mn) 2384 / 3005

3M Average Daily T/O (mn) 7.1

52 w eek range (SGD) 0.96 - 2.45

Closing Price in 52 w eek range

Major Shareholders (%)

16.4

7.4

3. Havenport Asset Management 4.8

Key Financial Summary

FYE FY11 FY12 FY13E FY14E

Revenue (USD mn) 107.0 158.7 320.4 513.5

Net Profit, adj. (USD mn) 47.3 63.1 118.0 208.0

EPS, adj. (USD) 0.060 0.073 0.120 0.206

P/E (X),adj. 30.0 24.5 14.8 8.7

BVPS (USD) 0.376 0.607 0.792 1.007

P/B (X) 4.8 2.9 2.3 1.8

DPS (USD) 0.001 0.001 0.001 0.001

Div. Yield (%) 0.1% 0.1% 0.1% 0.1%

Source: Bloomberg, PSR est.

*All multiples & yields based on current market price

Valuation Method

SOTP

Analyst

Nicholas Ong

[email protected]

+65 6531 5440

1. Chew Thiam Keng

2. Franklin Resources

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Volume, mn EZI SP EQUITY STI rebased

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Company Overview Ezion Holdings Ltd offers provision of offshore marine logistics and support services, and provides development, ownership, and chartering of strategic offshore assets.

The company has 2 key business divisions: (i) Liftboats & service rigs (27 units, including those under construction), and (ii) Offshore logistics support services (about 40 vessels with strong presence in Australia).

Well-positioned to benefit from robust liftboat demand in SEA & the Middle East: With merely ~1 liftboat serving 53 platforms in SEA, the Middle East and West Africa combine, vs. ~1 liftboat serving 13 platforms in North America, we believe Ezion is well-positioned to benefit from the robust liftboat demand in SEA & the Middle East, as oil companies outside US GoM begin to realize the advantages of liftboats as a low cost alternative for offshore service functions.

High ROE business with US$2.5bn SEU charters provides visibility: With a total value of about US$2.5bn worth of charter contracts spread over an average of 3-5 years, this provides long term earnings visibility to the company. Moreover, we believe the outlook for Ezion's liftboat business remains bright, given the robust fundamentals for SEU demand in SEA & the Middle East as discussed above. Ezion targets a minimum of 30% ROE (70% gearing) for its SEU contracts. Albeit the majority of its charter contracts are concentrated in SEA and Central America, it is also increasing its presence in Middle East as well as other parts of Asia, providing it exposure to different geographic locations. Assuming Ezion can achieve 30-40% ROE (US$90mn capex), we estimate each SEU contract win will add S$0.07-0.10 per share (3-4% to our valuation).

High earnings growth at 68% 2-year EPS CAGR: We estimate that Ezion will enjoy 68% 2-year EPS CAGR ('12A-14E) driven by (i) expanding SEU fleet (both liftboats as well as service rigs); and (ii) higher growth in Offshore logistics support business (thanks to its 3 LNG projects in Australia which will kick start in 2013).

Accumulate, TP of S$2.71: Our SOTP-based TP for Ezion is S$2.71. As our TP implies a 19.4% potential return, we initiate coverage with an Accumulate rating. Downside risks: delays in vessel delivery, high gearing affecting future capital raising for new projects, new entrants entering the liftboat market.

Div. Yield (%) 0.0% 0.0% 0.0% 0.0%

Ezion Holdings Ltd Singapore Equities Research 5 August 2013

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INVESTMENT SUMMARY We initiate coverage on Ezion Holdings Limited, owner of the largest and most sophisticated class of liftboats in the world and one of the first to market the use of liftboats in Asian and the Middle East, with an Accumulate rating and SOTP-based price target of S$2.71. Well-positioned to benefit from robust liftboat demand in SEA & the Middle East Self-elevating units (SEUs) or liftboats are self-propelled, self-elevating offshore working platforms, with large open deck space, jack-up legs, living quarters and cranes. They are used for a range of services including oil well intervention activities, repairs, upgrading and maintenance of offshore platforms. Key advantages of liftboats include:

1. Cost effective: Self-propelled -> no need for tug assists, hence saves mobilization costs

2. Stability: Stable platform in elevated position -> safer than workboats

3. Efficiency: Lower down time -> reducing reliance on barges

Liftboats are commonly used in the US Gulf of Mexico (GoM) for its cost effectiveness, stability and efficiency. However, liftboats are not as common outside US GoM because units which are designed to work in GoM are not suitable to operate in other markets due to greater water depth, harsher operating conditions, and the need for classification society approvals. Fig 1: Merely 13 platforms are served by 1 liftboat in North America vs. 53 platforms per liftboat in SEA, the Middle East and West Africa combine

Region

No. of

liftboats

No. of

platforms

Ratio of

platforms

per liftboat

North America 250 3,257 13

SEA,

Middle East,

West Africa

62 3,266 53

Source: Kennedy Marr, Infield Systems, Phillip Securities Research

Ezion, one of the first to introduce liftboats to Southeast Asia (SEA) and the Middle East, have larger and more sophisticated liftboats which are capable of operating in these regions. According to industry specialists Kennedy Marr and Infield Systems, offshore platform-to-liftboat ratio in North America is around 13:1, which means that every 13 platforms are served by 1 liftboat in North America. This ratio is a lot lower as compared to that in SEA, the Middle East and West Africa combine, where each liftboat unit is serving about 53 platforms.

We believe as oil companies outside US GoM begin to realize the advantages of liftboats as a low cost alternative for offshore service functions, the demand for liftboats in SEA & the Middle East will continue to grow going forward, hence benefiting Ezion. Fig 2: Global SEU fleet of 300 odd by geography

US GoM78%

West Africa12%

Middle East & SEA

7%

North Sea3%

Source: Infield systems, Phillip Securities Research

Fig 3: Global SEU fleet by water depth class

< 20m10%

20m - 39m23%

40m - 59m47%

> 59m20%

Source: Infield systems, Phillip Securities Research


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High ROE business with US$2.5bn SEU charters provide visibility With a total value of about US$2.5bn worth of charter contracts spread over an average of 3-5 years, this provides long term earnings visibility to the company. Moreover, we believe the outlook for Ezion's liftboat business remains bright, given the robust fundamentals for SEU demand in SEA & the Middle East as discussed above. In our current estimates, we have not incorporated any future charter wins. Ezion targets a minimum of 30% ROE (70% gearing) for its SEU contracts. Albeit the majority of its charter contracts are concentrated in SEA and Central America, it is also increasing its presence in Middle East as well as other parts of Asia, providing it exposure to different geographic locations. Assuming Ezion can achieve 30-40% ROE (US$90mn capex), we estimate each SEU contract win will add S$0.07-0.10 per share (3-4% to our valuation). Fig 4: Details of Ezion's SEU fleet

Start

month

Liftboat 1 49%, S&L 75.0 Bareboat Feb-10

Liftboat 2 Sold - in March 2011 for US$78mn - US$11mn gain

Liftboat 3 100% 82.0 Bareboat Dec-10

Liftboat 4 S&L 45.0 Time Apr-11

Liftboat 5 100% 45.0 Bareboat Apr-12

Liftboat 6 100% 109.5 Time Jul-12

Service rig 7 50% JV 109.5 Bareboat Oct-12

Service rig 8 50% JV 73.0 Bareboat Jan-12

Liftboat 9 100% 94.0 Time Oct-13

Service rig 10 100% 93.5 Bareboat Dec-12

Service rig 11 100% 80.3 Bareboat Jan-13

Service rig 12 100% 118.0 Bareboat Jun-13

Liftboat 13 100% 65.7 Bareboat Oct-13

Service rig 14 100% 80.0 Bareboat Apr-13

Service rig 15 100% 86.3 Bareboat Apr-13


Liftboat 17 100% 87.6 Bareboat Oct-14


Liftboat 19 100% 82.1 Bareboat Jan-15

Service rig 20 50% JV 149.0 Bareboat Mar-13

Service rig 21 50% JV 149.0 Bareboat Mar-13



Liftboat 24 100% 45.3 Time Oct-13


Service rig 26 50% JV 148.6 Bareboat Oct-13

Service rig 27 100% 80.3 Time Jan-14


Unit

Ownership

details

Charter

type

Charter value

(US$mn)

Source: Company, Phillip Securities Research

Fig 5: Each SEU are contracted with at least 30% ROE Funding (US$mn) Remarks

Bank loan 63 70% debt

Ezion's equity 27 30% equity

Total capex 90

(US$mn)

Bareboat

charter

Time

charter Remarks

Revenue 17 22

Operating cost 0 (5)

EBITDA 17 17

Depreciation (4) (4) Straight line over 25 years (for liftboat)

EBIT 13 13

Interest expense (3) (3) 5% interest rate

EBT 10 10

Tax expense 0 0 0% for Singapore-flagged vessels

Net income 10 10

ROE 37% 37% Source: Phillip Securities Research

Fig 6: Ezion's SEUs are contracted to work in different geographic locations

SEA37%

Central America

22%

North Sea15%

Africa4%

Middle East7%

Rest of Asia11%

Alaska4%



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High earnings growth at 68% 2-year EPS CAGR We estimate that Ezion will enjoy 68% 2-year EPS CAGR ('12A-14E) driven by (i) expanding SEU fleet (both liftboats as well as service rigs); and (ii) higher growth in Offshore logistics support business (thanks to its 3 LNG projects in Australia which will kick start in 2013). Fig 7: Impressive earnings growth

0

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100

150

200

250

FY08 FY09 FY10 FY11 FY12 FY13E FY14E

Core net prof it (US$mn)


As of end-1Q3, Ezion currently has 12 SEUs operating under long-term contracts. With another 11 units kicking in for the rest of 2013, 2 in 2014, and 2 in 2015, we believe this will significantly drive Ezion's EPS over the next 2 years.

Fig 8: Fast-growing SEU fleet plays a key role in driving Ezion's earnings

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Lif tboat Service rig


Australia represents the majority of Ezion's Offshore logistics support business, where it provides logistics vessels such as tugs and barges. We expect higher revenue from this segment as its 3 LNG projects in Australia begin work in 2H12/1H13.

Fig 9: Big jump in revenue for Offshore logistics support business in 2013 (US$mn)

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Fig 10: Ezion's LNG projects in Australia to date

Project Location Vessels

Contract

start date

Est.

annual

revenue

(US$mn)

Gorgon

Barrow Island,

Western

Australia

10 tugs & barges May-09 13

QCLNGCurtis Island,

Queensland5 tugs & 5 barges Aug-12 30

GLNGCurtis Island,

Queensland

5 tugs (from 3rd

party) & 5 bargesApr-13 30

APLNGCurtis Island,

Queensland

5 tugs (from 3rd

party) & 5 bargesFeb-13 30



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RISKS TO OUR THESIS Delay in deliveries could impact earnings Given that Ezion does not embark on speculative "new-builds" - meaning they will only add new SEUs when they are backed by new contracts - chartering revenues will only start recognition after new SEUs are built (within 12-24 months of receipt of contract). Ezion is currently expecting 16 SEUs to begin contribution over the next 2 years, where bulk of the chartering contracts will kick-start in 2H13 itself. Any delay in SEU deliveries would impact FY13E/14E earnings. "Capex heavy" model resulting in high gearing Ezion's net gearing had continued to rise over the past two years, mainly due to the rapid expansion of its SEU fleets. As its SEU cost US$55-110mn each (depends on specifications) to build, this in turn translates to high capital requirement (typically 70% debt funded). We estimated that net gearing would peak in FY13E as most SEUs are expected to be delivered in 2H13. Ezion's "capex heavy" model has also put pressure on free cash flow generation over the past few years, however we believe free cash flow should improve from FY14E, as new vessels start working. Fig 11: Ezion's free cash flow generation is expected to turnaround from FY14E onwards US$mn FY08 FY09 FY10 FY11 FY12 FY13E FY14E

EBITDA 13 25 37 51 74 188 323

Change in net working capital 14 (20) 4 (20) 21 (8) (29)

Gross operating cash flow 27 5 41 32 95 180 294

Taxes paid (0) (0) (1) (1) (2) (13) (19)

Capex (79) (127) (116) (126) (605) (692) (170)

Free cash flow (52) (122) (75) (95) (511) (524) 105

Net interest received (1) (2) (2) (1) (4) (26) (30)

Other (18) (9) 14 60 (49) 10 (8)

Cash acquisitions 0 0 0 0 0 0 0

Share issues/buybacks (0) 42 40 0 199 75 0

Dividend 0 (0) (0) (1) (1) (1) (1)

Change in interest-bearing debt 41 92 64 27 436 440 0

Change in cash & equivalents (30) 0 39 (10) 70 (26) 66 Source: Company, Phillip Securities Research Fig 12: Net debt to equity, in turn, will begin to decline in FY14E

27%

65%

26%

35%

76%

116%

84%

0%

20%

40%

60%

80%

100%

120%

140%

FY08 FY09 FY10 FY11 FY12 FY13E FY14E


Competition could drive down ROEs Currently, most of the major liftboat players like Hercules, EBI and AMC are based in the US with a strong presence in GoM; merely Ezion (Singapore-based) and Gulf Marine Services (GMS; Middle East-based) are international players. Albeit Ezion has been one of the first mover in bringing liftboats to Asia and the Middle East, the barriers to entry are rather low in our opinion, as new players can also own and charter liftboats out so long as they have the accessibility of capital and relationship with oil companies. Fig 13: Almost all major liftboat players are from the US, except Ezion (from Singapore) and GMS (from the Middle East)

0 10 20 30 40 50 60 70

Hercules Of fshore

EBI Elevating Boats

Ezion Holdings

AMC Lif tboat

Seacor Marine

Offshore Marine Contractors

Gulf Marine Services

Offshore Lif tboats

Trinity Lif tboat Services

Montco Offshore

Source: Company, Phillip Securities Research We believe competition is likely to increase, as competitors will be attracted by Ezion's high ROEs (at least 30% per contract). That said, management are trying to maintain its advantage by gradually building up its operational expertise and shifting its focus to providing "value-added" time charter services (operating of SEUs) instead of merely leasing them as bareboat charters. Rising interest rate Currently, Ezion is paying ~3% floating interest rate on its existing debt. This could go up to 4-5%, in the event that interest rates are to move up in 2014/15. In view of this, management is currently looking for ways to swap its floating interest rate to fixed rate in order to safeguard its earnings. Conservatively, we have already assumed 5% interest rate (70% gearing) in our model. Furthermore, we estimate that every 100bps (1%) increase in interest rates will merely result in a 2-3% decline in ROE. Hence, even if an SEU is contracted at the bare minimum of 30% ROE, a 200bps increase in interest rates will still lead to a respectable 24-25% ROE.


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SHARE PRICE PERFORMANCE Prior to 2007, Ezion Holdings was called Nylect Technology Limited. It was listed on the Singapore Exchange on 12 August 2000, raising net proceeds of just approximately S$2.9mn. At listing, the company was principally organized into 2 business segments: (1) mechanical and electrical (M&E) design & build, supply & installation for industrial parks/industrial & commercial buildings, and (2) specialist M&E services for wafer plant and clean room electrical installations. Since 2007, the company decided to venture into the offshore and marine (O&M) industry, and subsequently divested its mechanical engineering business. Over the past few years, Ezion has grown rapidly into what it is today, involved in the business of Liftboats & service rigs and Offshore logistics support services. Below is a broad overview of the development of the Group over the past 5 years, represented in a share price to event chart format. Fig 14: Ezion price-event chart (S$)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Source: Bloomberg, Phillip Securities Research

26 Feb 10: Sells 51% stake in

liftboat #1 (for US$14.8mn) and leases back

14 Jul 08: Brent

peaked at US$143.92/bbl

18 Feb 09: Brent

troughed at US$60.19/bbl

6 Jun 09: Placement

of 70mn shares @ S$0.62 for S$42.3mn

20 April 10: Deepwater

Horizon oil spill in the Gulf of Mexico

12 May 09: Wins

A$350mn charter contract (in consortium) for Gorgon gas project in Australia

13 Jul 10: Leases land in

Australia to develop a Marine Base to support O&G industry

19 Jul 10: Leases land

in Australia to develop 2nd Marine Base to support O&G industry

26 Jul 10: Issuance

of 53mn redeemable exchangeable preference shares @ S$1 for S$51.3mn

27 Apr 10: Sells liftboat

#2 for US$78mn; gain of US$14.4mn to be used to finance liftboat #5

22 May 12: Issuance

of S$100mn 3-year notes @ 5.25%

23 Feb 12: Placement

of 110mn shares @ S$0.88 for S$94.6mn

6 Nov 12: Subscription

of 10mn shares from Tan Boy Tee for S$12.5mn

5 Sep 12: Issuance of

S$125mn perpetual securities @ 7.8%

18 Dec 12: Subscription

of 14.3mn shares from EDBI for S$18.9mn

28 Feb 13: Issuance

of 50mn shares @ S$1.895 for 93.5mn

1 Mar 13: Divestment

of 33.3% shareholdings in OMSA

22 May 13: Issuance

of S$110mn 6-year notes @ 4.7%

18 Jul 13: Issuance of S$30mn

redeemable exchangeable preference shares


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VALUATION SOTP price target of S$2.71 Given the 2 different business segments of the Group, we value Ezion using a sum-of-the-parts methodology. And in valuing the individual segments, we adopt a discounted cash flow (DCF) valuation approach to value the Liftboats & service rigs business, while using an earnings multiple valuation approach to value the Offshore logistics support business. Our SOTP price target of S$2.71 implies 17.4x/9.9x FY13E/FY14E P/E and 2.7x/2.1x FY13E/FY14E P/B. Fig 15: Ezion sum-of-the-parts valuation

Valuation Valuation US$ per

Business segment methodology (US$mn) share

Liftboats & Service Rigs DCF 2,440 2.53

Offshore Logistics Vessels 5x FY13E EBITDA 275 0.29

Less: Net debt (as of 1Q13) (556) (0.58)

Less: Perp securities (109) (0.11)

Fair value of Ezion Holdings (US$) 2,051 2.13

Fair value of Ezion Holdings (S$) 2,608 2.71

Current price (S$) 2.27

Upside to price target 19%

# share outstanding (million) 964

y 22 out of 27

Source: Phillip Securities Research

Fig 16: Ezion WACC components

WACC components

Cost of equity (%)

Risk free rate (%) 3.0%

Beta 1.36

Equity risk premium (%) 6.5%

CAPM unleveraged discount rate 11.9%

Cost of debt (%)

Average spread over risk-free rate (%) 2.0%

Pre-tax cost of debt (%) 5.0%

Average corporate tax rate for company (%) 5.0%

Post-tax cost of debt (%) 4.8%

Target debt/debt+equity 40.0%

WACC (%) 9.0% Source: Phillip Securities Research

Liftboats & service rigs We believe Ezion's Liftboats & service rigs segment should be valued using DCF valuation, as most of its SEU contracts (currently 22 out of 27 of them) are bareboat charters - meaning that the business is not operating the SEUs (zero opex assumption) but merely leasing them out to clients - thus offering a more predictable and stable cash flow stream, given its known contract values, charter periods and relevant costs (see figure 27). Conservatively, we have assumed that liftboats (depreciation life = 25 years) can remain in service for 19 years, and service rigs (depreciation life = 10-20 years) can serve for 9.5 years. In view of potential competition arising in the SEU market, we have applied a 10% discount in charter rate after existing contracts end. In addition, we have included the maintenance/survey costs on liftboats and service rigs, which are required once every 5 years, in our DCF model. Offshore logistics support We value Ezion's Offshore logistics support segment using 5x FY14E EBITDA as bulk of its earnings come from LNG projects in Australia with relatively shorter contract term (ending in 2015/16), hence translating to lower earnings visibility. That said, we have not modeled in future new contracts, and we see potential upside risks should Ezion manage to secure projects for other LNG facilities in Australia going forward.


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Fig 17: Sector peers valuation comparison by region

Bloomberg

Market

Cap

Company Ticker (US$m) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E

SINGAPORE

Ezion Holdings EZI SP 1,720 18.9 11.0 2.9 2.3 0.2 0.2 0.0 0.0 12.7 7.4

Ezra Holdings EZRA SP 666 N/A 10.2 0.6 0.6 3.6 0.6 0.7 0.6 17.1 11.2

Jaya Holdings JAYA SP 355 11.8 8.7 0.7 0.6 5.8 0.6 2.0 0.6 5.9 4.6

Mermaid Maritime MMT SP 204 13.7 6.8 0.5 0.5 2.9 0.5 0.3 0.5 6.5 5.2

Swiber Holdings SWIB SP 353 6.4 5.5 0.7 0.6 11.4 0.6 1.4 0.6 8.5 7.4

Average 12.7 8.4 1.1 0.9 4.8 0.5 0.9 0.5 10.1 7.1

MALAYSIA

Bumi Armada BAB MK 3,595 22.4 18.7 2.8 2.4 13.0 2.4 0.8 2.4 12.8 10.6

MMHE MMHE MK 1,987 25.9 22.6 2.4 2.3 10.3 2.3 2.1 2.3 17.5 15.1

Perisai Petroleum PPT MK 447 14.4 11.4 2.2 2.0 16.4 2.0 0.0 2.0 11.6 7.9

Sapura Kencana SAKP MK 7,222 34.4 21.9 3.4 2.4 10.5 2.4 0.4 2.4 29.9 15.9

Average 22.0 16.6 2.4 2.0 11.0 1.9 0.8 1.9 16.4 11.3

UNITED STATES

Gulfmark Offshore GLF US 1,368 19.1 10.9 1.3 1.2 6.4 1.2 2.0 1.2 11.0 7.7

Hercules Offshore HERO US 1,145 34.6 8.8 1.2 1.1 6.9 1.1 0.0 1.1 6.3 4.0

Hornbeck Offshore HOS US 2,100 23.4 13.2 1.7 1.5 7.7 1.5 0.0 1.5 9.6 6.5

Tidewater TDW US 3,012 22.6 14.0 1.2 1.1 5.1 1.1 1.6 1.1 11.5 8.4

Average 20.2 12.6 1.7 1.4 7.7 1.3 1.0 1.2 12.5 8.7

EV/EBITDAP/E (x) P/B (x) ROE (%) Div yield (%)


Fig 18: 12-month forward P/E

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Average P/E = 10.1x

+1 SD = 14.8x

-1 SD = 5.4x


Fig 19: 12-month forward P/B

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Forward P/B Average +1 s.d. -1 s.d.

Average P/E = 1.3x

+1 SD = 1.8x

-1 SD = 0.8x



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Key assumptions Fig 20: Key operating assumptions

US$ in millions unless otherw ise stated


Revenue 117 107 159 320 514

Liftboats & service rigs 29 42 92 201 386

Offshore logistics support 88 65 67 120 127

Revenue growth -8.7% 48.4% 101.9% 60.3%

Liftboats & service rigs 45.6% 119.0% 118.2% 92.3%

Offshore logistics support -26.4% 2.7% 79.5% 6.5%

Income from operating activity 36 50 63 160 272



Income from op. activity growth 39.3% 26.1% 154.3% 70.0%


Offshore logistics support 37.4% -33.0% 118.9% 4.9%

% income from op. activity 100.0% 100.0% 100.0% 100.0% 100.0%

Liftboats & service rigs 51.0% 51.7% 74.3% 77.9% 86.4%

Offshore logistics support 49.0% 48.3% 25.7% 22.1% 13.6%

Income from op. activity margin 30.6% 46.7% 39.7% 49.9% 53.0%

Liftboats & service rigs 63.3% 61.4% 50.8% 62.1% 60.8%

Offshore logistics support 19.9% 37.1% 24.2% 29.5% 29.1%


Revenue growthWe forecast a 118%/92% jump in Liftboats & Service Rigs revenue for FY13E/14E as 16 SEUs will start to contribute in 2013-14.

Offshore Logisitics Support revenue will increase by 80% in FY13E due to the LNG projects in Australia.

% income from operating activitiesWe expect the Liftboats & Service Rigs segment to account for more than 85% of income from operating activities by end-FY14E as more SEUs begin their contributions.


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COMPANY BACKGROUND

Profile Ezion Holdings Limited was established in 1976 as "Nylect Technologies", a mechanical engineering company, and listed on the Singapore Stock Exchange in 2000. Since 2007, the company divested the engineering business and ventured into the offshore & marine (O&M) business. Over the past few years, Ezion has evolved into a niche player within the O&M industry specializing in the development, ownership and chartering of strategic offshore assets and the provision of offshore marine logistics and support services to the offshore oil and gas (O&G) industry. The company's businesses are classified under two key business segments, namely, (1) Liftboats & service rigs, and (2) Offshore logistics support. Liftboats & service rigs segment is the biggest operating income contributor accounting for 74% for FY12, while Offshore logistics support at 26%.

Fig 21: Liftboats & service rigs segment to contribute as much as 75% of revenue by FY14E

25%

39%

58% 63%75%

75%

61%

42% 37%25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Liftboats & service rigs Offshore logistics support


Fig 22: Results from operating activities breakdown by segment (FY12)

Offshore

logistics

support

26%

Liftboats &

service rigs

74%


Fig 23: Ezion's business overview

Source: Company


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Fig 24: Group structure

Source: Company


12 of 23

Liftboats & service rigs This segment provides self elevating units (SEUs), namely liftboats and service rigs, for well-servicing, commissioning, maintenance and decommissioning of offshore platforms. It owns one of the largest and most sophisticated class of liftboats in the world and was one of the first to promote the usage of liftboats in Asia, the Middle East and West Africa. Currently, it has a fleet of 27 SEUs (including those under construction). Fig 25: Liftboats & service rigs segment revenue and income from operating activities

0

5

10

15

20

25

30

35

40

45

50

0

10

20

30

40

50

60

70

80

90

100

FY10 FY11 FY12

Revenue (US$mn) - LHS Income from operating activities (US$mn) - RHS


Fig 26: Ezion's high spec liftboat design

Source: Company

Fig 27: Ezion's SEU fleet status

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

Liftboat 1 49%, S&L 75.0 Bareboat

Liftboat 2 Sold - in March 2011 for US$78mn - US$11mn gain

Liftboat 3 100% 82.0 Bareboat

Liftboat 4 S&L 45.0 Time

Liftboat 5 100% 45.0 Bareboat

Liftboat 6 100% 109.5 Time

Service rig 7 50% JV 109.5 Bareboat Till 4Q17

Service rig 8 50% JV 73.0 Bareboat

Liftboat 9 100% 94.0 Time Till 4Q18

Service rig 10 100% 93.5 Bareboat Till 2Q17



Liftboat 13 100% 65.7 Bareboat Till 4Q17




Liftboat 17 100% 87.6 Bareboat Till mid 2018







Liftboat 24 100% 45.3 Time

Service rig 25 100% 48.2 Bareboat Till end 2016


Service rig 27 100% 80.3 Time Till end 2017


Charter period

Unit

Ownership

details

Charter

type

Charter value

(US$mn)



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Offshore logistics support This segment has a fleet of about 40 vessels, consisting of tugs, ballastable barges, OSV and self-propelled barge which are used in the provision of offshore marine logistics and support services to the offshore O&G industry. While these vessels are chartered out to oil companies in different regions, about 50% are deployed in Australia to service various LNG projects for infrastructure build-out and field development. Fig 28: Offshore logistics vessels segment revenue and income from operating activities

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

80

90

100

FY10 FY11 FY12

Revenue (US$mn) - LHS Income from operating activities (US$mn) - RHS


Fig 29: Ezion's various LNG projects in Australia

Project Location Vessels

Contract

start date

Est. annual

revenue

(US$mn)

GorgonBarrow Island,

Western Australia10 tugs & barges May-09 13

QCLNGCurtis Island,

Queensland5 tugs & 5 barges Aug-12 30

GLNGCurtis Island,

Queensland

5 tugs (from 3rd party)

& 5 bargesApr-13 30

APLNGCurtis Island,

Queensland

5 tugs (from 3rd party)

& 5 bargesFeb-13 30


Ezion's first major LNG related project in Australia is for the development of Greater Gorgon Area gas fields worth A$420mn in 2009, in which Ezion charters a fleet of 10 marine logistics vessels to Chevron from May 2009 till early 2015. Following the Gorgon contract win, Ezion won another 3 LNG related projects in Australia on Curtis Island, Queensland, to provide full logistics and support services activities for the haulage of equipment and modules for the development of LNG. Fig 30: Location of offloading facilities for Curtis Island LNG projects

Source: Company


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Australia marine supply bases Besides the 2 key segments mentioned above, Ezion is also developing two marine supply bases in close proximity to offshore O&G fields in North Western Australia and Northern Territory of Australia. Both supply bases are strategically located to support the development of ongoing and future O&G activities there. Fig 31: Locations of Ezion's marine supply bases in close proximity to offshore oil & gas fields in North Western Australia & Northern Territory of Australia

Source: Company


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FINANCIAL ANALYSIS Fig 32: Profit and loss

US$ in millions, year-end December


Revenue 117 107 159 320 514



% Revenue growth -8.7% 48.4% 101.9% 60.3%


Offshore logistics support -26.4% 2.7% 79.5% 6.5%

Income from operating activity 36 50 63 160 272



% income from operating activity growth 39.3% 26.1% 154.3% 70.0%


Other operating expenses 37.4% -33.0% 118.9% 4.9%

Adminstrative expenses (13) (9) (12) (21) (37)

EBIT (ex. exceptional items) 28 41 57 140 236

% EBIT growth 69.4% 46.8% 38.2% 145.3% 68.1%

% EBIT margin 24.0% 38.7% 36.0% 43.8% 45.9%

Interest income 0 2 3 4 3

Interest expense (3) (3) (8) (30) (34)

Share of associates & JVs 7 10 17 25 29

Profit before tax 43 61 83 156 235

Tax (3) (3) (4) (13) (19)

Profit after tax 40 58 79 144 216

Minority interest 0 0 0 0 0

Net profit 40 58 79 144 216

Net profit (adj., ex. pref. div.) 30 47 63 118 208

% Net profit (adj.) growth 88.2% 58.6% 33.5% 86.9% 76.3%

% Net profit (adj.) margin 25.5% 44.2% 39.8% 36.8% 40.5%

EPS (US$) - adjusted 4.14 5.95 7.30 12.03 20.62

DPS (US$) 0.10 0.10 0.10 0.10 0.10



16 of 23

Fig 33: Balance sheet



Cash 76 63 135 109 175

Inventories 1 0 0 0 0

Account receivables 36 32 57 90 145

Assets held for sale 55 0 3 3 3

Other current assets 32 32 78 78 78

Current assets 198 127 273 279 400

Fixed assets 151 271 794 1,438 1,521

Associates & JV 44 71 127 152 181

Other assets 4 1 4 4 4

Non-current assets 199 343 925 1,594 1,707

Total assets 397 470 1,198 1,874 2,107

Accounts payable 31 26 33 59 85

ST debt 71 39 77 107 107

Provision for tax 3 4 7 7 7

Other current liabilities 21 12 41 41 41

Current liabilities 126 82 158 213 239

LT debt 59 118 475 885 885

Other liabilities 2 2 12 12 12

Non-current liabilities 61 120 487 897 897

Total liabilities 187 202 645 1,110 1,136

Share capital 124 124 260 260 260

Accumulated profits 57 116 193 404 611

Other reserves 29 28 99 99 99

Equity 210 268 553 763 970

Minority interests 0 0 0 0 0

Total shareholder's equity 210 268 553 763 970

Total liabilities & S/H equity 397 470 1,198 1,874 2,107


Fig 34: Cash flow statement



Profit before tax 43 61 83 156 235

Depreciation & amortization 9 10 17 48 87

Other non-cash items (11) (15) (25) 2 1

Changes in working capital 4 (20) 21 (8) (29)

Interest paid (3) (3) (7) (30) (34)

Tax paid (1) (1) (2) (13) (19)

Cash from operations 42 32 87 156 242

Capex (116) (126) (605) (692) (170)

Disposal 17 8 7 0 0

Net change in Assoc/JVs 7 (15) (1) 0 0

Dividends received 1 3 2 4 3

Other investing activities (11) 60 (59) 0 0

Cash from investing activities (102) (70) (655) (688) (167)

Share issues 40 0 199 75 0

Net change in gross debt 64 27 436 440 0

Dividend paid (0) (1) (1) (1) (1)

Other financing activities (4) 2 4 (8) (8)

Cash from financing activities 99 28 638 506 (9)

Net change in cash 39 (10) 70 (26) 66

Beginning cash 31 76 63 135 109

Effect of exchange rate changes 2 0 5 0 0

Ending cash 76 63 135 109 175


CapexProjected capex for 2013 = US$692mn mainly for the new liftboats and service rigs.

Debt / equity raisingAs of 1Q13, Ezra has raised US$165mn in debt and US$75mn in equity via sale of 50mn new shares to fund capex. Given its "capex heavy" model, investors should be aware that capital raised are used to fund new-builds for new contracts, which should eventually be earnings accretive.


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Fig 35: Key operating & financial ratios



Growth analysis

Sales growth 59.1% -8.7% 48.4% 101.9% 60.3%

EBITDA growth 48.6% 37.1% 44.2% 155.2% 71.6%

EBIT growth 69.4% 46.8% 38.2% 145.3% 68.1%

Net income (recurring) growth 88.2% 58.6% 33.5% 86.9% 76.3%

Margin analysis

EBITDA margin 31.9% 47.8% 46.5% 58.7% 62.9%

EBIT margin 24.0% 38.7% 36.0% 43.8% 45.9%

Net income (recurring) margin 25.5% 44.2% 39.8% 36.8% 40.5%

Profitability analysis

ROA 11.8% 13.4% 9.5% 9.4% 10.8%

ROCE 16.0% 17.7% 11.1% 10.8% 12.3%

ROE 17.2% 19.8% 15.4% 17.9% 24.0%

Average capital employed 251 328 707 1,338 1,752

Leverage ratio

Total debt / equity 62.2% 58.8% 99.9% 130.0% 102.3%

Net debt / equity 26.2% 35.2% 75.5% 115.8% 84.3%

EBITDA / interest expense (x) 14.4 18.8 9.5 6.2 9.6

Net debt / EBITDA (x) 1.5 1.8 5.7 4.7 2.5

Total debt / EBITDA (x) 3.5 3.1 7.5 5.3 3.1

Turnover ratios

Asset turnover ratio (x) 0.34 0.25 0.19 0.21 0.26

Fixed asset turnover ratio (x) 0.66 0.51 0.30 0.29 0.35

Per share ratios

# shares (diluted) 720 794 865 981 1,009

EPS (US$) 0.06 0.07 0.09 0.15 0.21

DPS (S$) 0.00 0.00 0.00 0.00 0.00

BVPS (US$) 0.29 0.38 0.61 0.79 1.01

Total cash per share (US$) 0.11 0.09 0.15 0.11 0.18

Net debt per share (US$) 0.08 0.13 0.46 0.92 0.85

ROE decomposition

Asset turnover 0.3 0.2 0.2 0.2 0.3

Net margin 25.5% 44.2% 39.8% 36.8% 40.5%

Asset / Equity 2.0 1.8 2.0 2.3 2.3

ROE 17.2% 19.8% 15.4% 17.9% 24.0%



18 of 23

Fig 36: Revenue breakdown by business segment (FY12) Fig 37: Income from operating activity by segment (FY12)

Source: Philliip Securities Research Source: Company

Fig 38: Revenue by geography (FY12) Fig 39: Segment assets by geography (FY12)

Source: Company Source: Company

Offshore

logistics

support

42%

Liftboats &

service rigs

58%

Offshore

logistics

support

26%

Liftboats &

service rigs

74%

Singapore

23%

Australia

29%

Far East &

ASEAN

38%

Others

10%

Singapore

86%

Australia

0%

Mauritius

7%

Others

7%


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FYE Dec FY10 FY11 FY12 FY13E FY14E

Valuation Ratios

P/E (X), adj. 43.0 29.9 24.4 14.8 8.6

P/B (X) 6.1 4.7 2.9 2.2 1.8

EV/EBITDA (X), adj. 63.9 46.6 32.3 12.7 7.4

Dividend Yield (%) 0.1% 0.1% 0.1% 0.1% 0.1%

Per share data (USD)

EPS, reported 0.056 0.081 0.095 0.154 0.224

EPS, adj. 0.041 0.060 0.073 0.120 0.206

DPS 0.001 0.001 0.001 0.001 0.001

BVPS 0.294 0.376 0.607 0.792 1.007

Growth & Margins (%)

Growth

Revenue 276.8% -8.7% 48.4% 101.9% 60.3%

EBITDA 178.5% 37.1% 44.2% 155.2% 71.6%

EBIT 191.5% 46.8% 38.2% 145.3% 68.1%

Net Income, adj. 271.0% 58.6% 33.5% 86.9% 76.3%

Margins

EBITDA margin 31.9% 47.8% 46.5% 58.7% 62.9%

EBIT margin 24.0% 38.7% 36.0% 43.8% 45.9%

Net Profit Margin 34.3% 54.3% 49.7% 44.9% 42.0%

Key Ratios

ROE (%) 25.8% 24.3% 19.2% 21.9% 24.9%

ROA (%) 13.5% 13.4% 9.5% 9.4% 10.8%

Net Debt/(Cash) 55 95 418 884 818

Net Gearing (X) 0.3 0.4 0.8 1.2 0.8

Income Statement (USD mn)

Revenue 117.1 107.0 158.7 320.4 513.5

EBITDA 37.3 51.1 73.7 188.2 323.0

Depreciation & Amortisation (9.1) (9.8) (16.6) (48.0) (87.3)

EBIT 28.2 41.3 57.2 140.2 235.7

Net Finance (Expense)/Income (2.2) (0.7) (4.7) (26.3) (30.5)

Other items 10.4 10.8 13.4 18.0 0.0

Associates & JVs 6.8 9.5 16.9 24.5 29.5

Profit Before Tax 43.2 61.0 82.8 156.4 234.7

Taxation (3.0) (2.9) (3.9) (12.5) (18.8)

Profit After Tax 40.2 58.1 78.8 143.9 215.9

Non-controlling Interest 0.0 0.0 0.0 0.0 0.0

Net Income, reported 40.2 58.1 78.8 143.9 215.9

Net Income, adj., aft pref div 29.8 47.3 63.1 118.0 208.0

Source: PSR


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FYE Dec FY10 FY11 FY12 FY13E FY14E

Balance Sheet (USD mn)

PPE 150.8 270.8 793.7 1,438.0 1,521.0

Intangibles 0.0 0.0 0.0 0.0 0.0

Associates & JVs 43.9 71.4 127.3 151.9 181.3

Investments 0.0 0.0 0.0 0.0 0.0

Others 4.1 0.9 4.2 4.2 4.2

Total non-current assets 198.8 343.0 925.3 1,594.1 1,706.6

Inventories 0.7 0.0 0.0 0.0 0.0

Accounts Receivables 36.4 32.2 57.5 90.5 145.0

Investments 0.0 0.0 0.0 0.0 0.0

Cash 75.5 63.2 134.9 108.6 174.8

Others 85.8 32.0 80.4 80.4 80.4

Total current assets 198.4 127.4 272.7 279.5 400.1

Total Assets 397.3 470.4 1,198.0 1,873.6 2,106.7

Short term loans 71.1 39.5 77.5 107.5 107.5

Accounts Payables 30.7 25.5 33.4 58.7 84.6

Others 24.1 16.9 47.3 47.3 47.3

Total current liabilities 125.9 81.8 158.1 213.4 239.3

Long term loans 59.4 118.2 474.9 884.9 884.9

Others 2.0 2.0 12.1 12.1 12.1

Total non-current liabilities 61.4 120.2 487.0 897.0 897.0

Non-controlling interest 0.0 0.0 0.0 0.0 0.0

Shareholder Equity 209.9 268.3 552.8 763.2 970.4

Cashflow Statements (USD mn)

CFO

PBT 43.2 61.0 82.8 156.4 234.7

Adjustments (1.9) (5.6) (8.8) 49.8 88.3

Cash from ops before WC changes 41.3 55.4 74.0 206.2 323.0

WC changes 3.8 (19.5) 21.4 (7.7) (28.7)

Cash generated from ops 45.1 35.9 95.4 198.4 294.3

Taxes paid, net (0.6) (1.4) (1.7) (12.5) (18.8)

Interest paid (2.6) (2.7) (6.7) (30.4) (33.7)

Cashflow from ops 41.9 31.8 87.0 155.5 241.8

CFI

CAPEX, net (115.8) (125.5) (604.6) (692.3) (170.3)

Dividends from associates & JVs 0.4 0.5 1.5 0.0 0.0

Dividends/Interest from Investments 0.4 2.0 0.6 4.0 3.3

Purchase/sale of investments 0.0 0.0 0.0 0.0 0.0

Investments in subs & associates 6.8 (15.1) (0.7) 0.0 0.0

Others 6.0 67.8 (51.7) 0.0 0.0

Cashflow from investments (102.2) (70.3) (654.9) (688.3) (167.0)

CFF

Share issuance 39.8 0.1 199.2 75.1 0.0

Purchase of treasury shares 0.0 0.0 0.0 0.0 0.0

Loans, net of repayments 63.6 26.5 435.8 440.0 0.0

Dividends to minority interests 0.0 0.0 0.0 0.0 0.0

Dividends to shareholders & capital reduction (0.3) (0.6) (0.7) (0.8) (0.8)

Others (3.7) 2.3 3.7 (7.9) (7.9)

Cashflow from financing 99.4 28.4 638.0 506.4 (8.7)

Net change in cash 39.2 (10.1) 70.1 (26.3) 66.1

Effects of exchange rates 1.5 0.0 5.3 0.0 0.0

CCE, end 75.5 63.2 134.9 108.6 174.8

Source: PSR


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Total Returns Recommendation Rating

> +20% Buy 1

+5% to +20% Accumulate 2

-5% to +5% Neutral 3

-5% to -20% Reduce 4

<-20% Sell 5

Ratings History

PSR Rating System

Remarks

We do not base our recommendations entirely on the above quantitative return bands.

We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market

sentiment, recent rate of share price appreciation, presence or absence of stock price

catalysts, and speculative undertones surrounding the stock, before making our f inal

recommendation

12345

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Feb

-11

May-1

1

Aug-11

Nov-11

Feb

-12

May-1

2

Aug-12

Nov-12

Feb

-13

May-1

3

Aug-13

Nov-13

Feb

-14

Source: Bloomberg, PSR

Market Price

Target Price


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CHINA Phillip Financial Advisory (Shanghai) Co.

Ltd No 550 Yan An East Road,

Ocean Tower Unit 2318, Postal code 200001

Tel +86-21 5169 9200 Fax +86-21 6351 2940

Website: www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak,

Bangkok 10500 Thailand Tel +66-2 6351700 / 22680999

Fax +66-2 22680921 Website www.phillip.co.th

FRANCE King & Shaxson Capital Limited

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel +33-1 45633100 Fax +33-1 45636017

Website: www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Capital Limited

6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS

Tel +44-20 7426 5950 Fax +44-20 7626 1757

Website: www.kingandshaxson.com

UNITED STATES Phillip Futures Inc

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel +1-312 356 9000 Fax +1-312 356 9005

AUSTRALIA PhillipCapital

Level 12, 15 William Street, Melbourne, Victoria 3000, Australia

Tel +61-03 9629 8288 Fax +61-03 9629 8882

Website: www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

Website: www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, C‐Block, 2nd Floor, Modern Center , Jacob Circle, K. K. Marg, Mahalaxmi

Mumbai 400011 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955

Website: www.phillipcapital.in

http://www.poems.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.id/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/

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