Ezion Holdings

[c130spooky]

Hi there,

I am new to this forum and hope to learn from many of the veterans in this forum.

With regard to the O&G sector being a cyclical industry, anyone has any thoughts about this comment on Ezion recurring profits. It seems logical as they enter into contracts where the day rates would be locked in. Appreciate comments.

Subject: FW: DBS Vickers (Spore) Ezion Holdings: Bumping up profits; BUY S$0.685; Price Target : S$ 1.09

Ezion Holdings: BUY S$0.685; Bloomberg: EZI SP Bumping up profits; Price Target : S$ 1.09
By: Jeremy THIA +65 6398 7974

At a Glance
• 1Q11 core PATMI of US$11.5m was above; disposal of liftboat #2 finally
completed; headline PATMI boosted +309%.

• Liftboat #4 starts to contribute from June.

• Top pick among asset owners; BUY, TP S$1.09.

Comment on Results

1Q11 above. Recurring net profit surged 110% y-o-y to US$11.5m, 35% above our expectations, driven by full 3 months’ contributions from 2 liftboats (vs. c. 2 months from 1

[Nick]

One key risk is the short term nature of the charter contracts for its liftboats - 3 years + 2 years (option). If the charter market plunges in 2013 onwards, it will be difficult to justify the current charter rates and Ezion might be forced to renew its charters at much lower rates. There is also the issue of VTL ratios for its loans which may be breached in the event of a recession. While I think the latter is low risk since Ezion (unlike a biz trust) retains virtually all of its profits, the former risk might take place if a recession occurs in 2013 onwards. On the other hand, if the rig market soars till 2015, Ezion will be in a sweet spot. Basically, an investment in Ezion is a bet on the liftboat/rig charter market going forward.

(Not Vested in any O&G coys)

[Musicwhiz]

One key risk is the short term nature of the charter contracts for its liftboats - 3 years + 2 years (option). If the charter market plunges in 2013 onwards, it will be difficult to justify the current charter rates and Ezion might be forced to renew its charters at much lower rates. There is also the issue of VTL ratios for its loans which may be breached in the event of a recession. While I think the latter is low risk since Ezion (unlike a biz trust) retains virtually all of its profits, the former risk might take place if a recession occurs in 2013 onwards. On the other hand, if the rig market soars till 2015, Ezion will be in a sweet spot. Basically, an investment in Ezion is a bet on the liftboat/rig charter market going forward.

(Not Vested in any O&G coys)

There is already an over-supply of tug boat and OSV in the shallow water segment, and this is due to aggressive building during 2006-2009 to cater to the booming O&G market. Most of the heavy drilling for oil is now taking place at deeper water levels. You actually see the trend clearly in companies like Ezra and Swiber where they have to bid for jobs relating to deepwater rigs. Companies like Ezra and Ezion have to constantly invest in capex to ensure they stay ahead of the curve.

Looking at Ezion, the Balance Sheet looks somewhat healthier than last year, but cash flows and income statement are distorted by sale of fixed assets. Better to look at 5-year performance, but I understand this is short as the company used to be called Nylect.

[Nick]

I don't think Ezion deals with tug boats or OSV. It deals mainly with liftboats and rigs. Liftboat is a self propelled jack up rig used to service, upgrade, commission and decommission old oil platforms. At the moment, there are close to 2000 aging oil platforms in SEA and Mid East but there are only 60 liftboats in the region so in some sense, there might be an under-supply. Charter Rates and asset valuation has remained stable in the past few years. It recently diversified into drilling rig through its JV company in Alaska. The core profit (excluding vessel sale) has increased by 1,000 % in 4 years. But as always, while the earnings for the next 2-3 years is more or less certain to grow exponentially as the remaining 3 liftboats are delivered, it will be difficult to extrapolate the earnings forward since the charter contract has a firm 3 year only. The planned expansion to marine supply base may not necessarily bear fruit. They are experiencing some delays in that segment.

[Musicwhiz]

I don't think Ezion deals with tug boats or OSV. It deals mainly with liftboats and rigs.

Thanks for the clarification!

[Nick]

AIDEA considers jack-up delays; changes would push drilling to ’12

http://www.petroleumnews.com/pntruncate/407947128.shtml

This is the Ezion JV coy which intends to bareboat charter a jack up rig in Alaska for 5 years for US$109.5 million.

(Not Vested)

[Nick]

Ezion Capitalises On Liftboat Niche To Emerge As Dominant Offshore Support Services Provider

http://www.sharesinv.com/articles/2011/0...oat-niche/ [Article]

A very recent article from Sharesinv.

(Not Vested)

[Nick]

Ezion requested for trading halt. Let's see what announcement will be released.

[Nick]

EZION’S ENTITY SECURES A CONTRACT WITH A VALUE OF UP TO USD 73.0 MILLION OVER A 4 YEAR PERIOD TO PROVIDE AN ACCOMMODATION JACK-UP RIG TO SUPPORT A EUROPEAN OIL MAJOR IN THE NORTH SEA

http://info.sgx.com/webcoranncatth.nsf/V...000297B24/$file/Ann_JVCo_AtlanticLab_EzionANDTreatmil.pdf?openelement [SGX Release]

(Not Vested)

[Musicwhiz]

(Not Vested)

Business Times - 17 Jun 2011

Ezion associate bags US$73m charter contract

Four-year deal comes from a European oil major

By CARINE LEE

EZION Holdings' 50:50 joint-venture company, Atlantic Labrador Pte Ltd, has secured a charter contract worth up to US$73 million over four years, to provide a North Sea Class accommodation jack-up rig for use by a European oil major.

The rig will support the European oil major's oil & gas activities in offshore Denmark.

Singapore-listed Ezion's joint venture partner in Atlantic Labrador is Treatmil Holdings Limited, a European-based offshore service company that provides specialised rig management services to the offshore oil & gas and wind industries' operators in the North Sea.

Ezion said that Atlantic will acquire, refurbish, upgrade and mobilise the upgraded accommodation jack-up rig to the North Sea before the end of FY2011.

In its announcement yesterday, Ezion said that Atlantic will have a paid-up capital of US$10 million.

Ezion said that it does not expect this transaction to have a material impact on the group's earning per share or net tangible assets per share for the financial year ending Dec 31, 2011.

Ezion is the owner of one of the largest multi-purpose self-propelled jack-up rigs in the world, used mainly for well-servicing, commissioning, maintenance and decommissioning of offshore platforms.

Its shares closed half a cent lower yesterday at 64.5 cents.