Singapore Stock Picks: Ezion Holdings BUY (Target Price SGD2.65)

Ezion Holdings: SGD2.11 BUY (TP: SGD2.65) Strong Earnings From Bigger Fleet Of Service Rigs Ezion reported solid 3Q13 net profit of USD38.2m (+137% y-o-y) thanks to higher revenue from service rigs and logistics support operations in Australia. We maintain our FY13-15F EPS estimates pending an update with management. The strong set of results reaffirmed our BUY rating on the stock. Our SGD2.65 TP is based on 16x blended FY13/14F EPS. 3Q13 earnings above expectations. 3Q13 net profit surged by +137% y-o-y to USD38.2m, thanks to higher revenue (+97% y-o-y) from the deployment of more service rigs and contributions from offshore logistics support services in Australia. Excluding a USD18m gain from disposal, 9M13 core net profit of USD103m (+127% y-o-y) accounted for 78% of our FY13 forecast. We believe the stronger-than-expected earnings were boosted by solid operations in Australia and lower interest expenses arising from interest capitalised for assets under construction. Balance sheet gearing at 1.05x. Ezion ended 3Q13 with a gross debt of USD1bn and gross cash of USD209m. Cash generation was in line with our estimate - 9M13 net inflow from operating activities was at USD82.8m. We expect net gearing to stay at around 1.0x by end-FY13. Assuming no new capex, net gearing will fall to 0.86x in FY14F and 0.52x in FY15F. We believe the current gearing level is not aggressive, as the business is supported by long-term charter contracts. USD1.9bn charter backlog. Ezion has won nine new charter contracts worth USD584m in 2013 and we estimate a total charter backlog of around USD1.9bn. More service rigs are expected to start deployment in 4Q13 and we see an upside risk to our FY13 EPS estimates. Based on its existing pipeline, Ezion’s fleet will grow to 29 units by FY15. Maintain BUY with SGD2.65 TP. At our TP, the stock is valued at 11x FY14F P/E. We like Ezion for its strong earnings visibility and growth, and undemanding valuation of 9x FY14F P/E. We expect the robust demand for service rigs to translate into more new charters for the company.