by Aspellian » Thu Jun 11, 2009 5:33 pm
Ezion Holdings Ltd - A$350m contract win is just the beginning
Main catalysts - 1Q09 results in line with expectations – Ezion reported revenue growth of 211.1% to S$14.6m in 1Q09, mainly due to increase in revenue from offshore logistics support services. In line with increased business activities, the Group’s operating expenses increased 177.9% to S$1.7m, resulting in 181.5% net profit growth to S$3.3m in 1Q09
Gorgon project A$350m contract wins – Just the beginning – The contract win of A$350m excites us in three ways -
(1) Ezion, being the lead manager of the Consortium, reinforces Ezion’s capabilities in the offshore support industry.
(2) The contract win of A$350m is just a fraction of the estimated capital expenditure for Gorgon gas field, projected to be around A$50 billion.
(3) Given that the Consortium is involved in the early stages of the Gorgon Project, we believe the Consortium is well positioned to capture a substantial portion of the total capital expenditure going forward.
The in-depth knowledge expected to be acquired by the Consortium from the early stage involvement is likely to create a high barrier of entry for the Consortium’s competitors for subsequent contract biddings.
Earnings forecast revised
– We lower our earnings estimates for FY09F by 15% to S$18.7m, after including contribution from share of profits from Gorgon project as well as pushing back delivery of the first two units of multi-purpose self-propelled jack-up rigs to 4Q09 and 1Q10 (previously assumed 3Q09 delivery).
Valuation & Recommendation -
Maintain BUY with target price revised to S$0.94 – We change our valuation metric from discounted cash flow to price-to-earning based as we expect the group's activities and growth prospects to be earnings driven. We raise our 12-month target price to S$0.94, based on 10x FY10F EPS, justified by its strong earnings outlook, further underpinned by robust industry dynamics. With an upside potential of 62%, we maintain our BUY recommendation on Ezion.
Gorgon Project - A$350m contract wins
Ezion Holdings Limited recently announced that a consortium led by the Ezion Group entered into an agreement with a Multi-National Oil Major for the supply of marine vessels in Australia with a contract value of approximately A$350m. Skilled Group Limited (“SGLâ€), consortium’s Australian partner listed on the Australian Stock Exchange, separately announced the contract the. SGL announced that a joint venture company, Offshore Marine Services Alliance Pty Ltd (“OMSAâ€), will be formed between SGL’s oil and gas manning business, Ezion and PBSea-Tow, a wholly owned subsidiary of Pacific Basin Shipping, a Hong Kong listed company with each company owning one third of the joint venture project. The contract, expected to commence in 3Q09, is valued at around A$350m for a minimum three year period.
Overview of Gorgon Project
Australia’s largest known gas resource – 40 trillion cubic feet of gas The Gorgon Project plans to develop the Australia’s largest known gas resource Greater Gorgon gas fields, containing resources of about 40 trillion cubic feet of gas, located about 130 km off the north-west coast of Western Australia. This development will secure Australia’s position as a leading gas producer and generate a new source of wealth for Western Australia and Australia.
Gorgon’s Project operator – Chevron partnering ExxonMobil and Shell
The Gorgon Project is being pursued by the Australian subsidiaries of three leading international energy companies, namely Chevron, ExxonMobil and Shell. Chevron is operator of the Project with a 50% interest, with ExxonMobil and Shell each holding 25%.
Total capital expenditure could cost as much as A$50 billion
In 2003, the Gorgon’s project cost was initially estimated to be A$11 billion. However, Gorgon’s partners Chevron, ExxonMobil and Royal Dutch Shell, have since expanded its scope and also had to deal with inflationary pressures such as construction and labour cost blowouts. Various news agencies reported that the Gorgon Project could cost as much as US$32 billion (or A$50 billion) to develop the 40 trillion cubic feet of reserves, which Gorgon’s operator Chevron refused to confirm the cost estimate. The above-mentioned contract win, A$350m, is less than 1% of the estimated total capital expenditure.
Why should investors be excited?
In our view, the contract win of A$350m excites us in three ways:
1. Ezion, being the lead manager of the Consortium, reinforces Ezion’s capabilities in the offshore support industry.
2. The contract win of A$350m is just a fraction of the estimated capital expenditure for Gorgon gas field, projected to be around A$50 billion.
3. Given that the Consortium is involved in the early stages of the Gorgon Project, we believe the Consortium is well positioned to capture a substantial portion of the total capital expenditure going forward. The in-depth knowledge expected to be acquired by the Consortium from the early stage involvement is likely to create a high barrier of entry for the Consortium’s competitors for subsequent contract biddings.
Revision of Earnings Estimates
We lower our earnings estimates for FY09F by 15% to S$18.7m, after including contribution from share of profits from Gorgon project as well as pushing back delivery of the first two units of multi-purpose self-propelled jack-up rigs to 4Q09 and 1Q10 (previously assumed 3Q09 delivery).
Valuation & Recommendation
We change our valuation metric from discounted cash flow to price-to-earning based as we expect the group's activities and growth prospects to be earnings driven. We raise our 12-month target price to S$0.94, based on 10x FY10F EPS, justified by its strong earnings outlook, further underpinned by robust industry dynamics. With an upside potential of 62%, we maintain our BUY recommendation on Ezion.
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