20 February 2014

Ezion - Still Growing - FEB 2014 (Updated 24 Feb 2014)

Company Background
Ezion is a company in Oil & Gas industry, specialized in service rigs and port & marine business, as it is one of the largest lifeboat service providers in the world and focusing in Asia and Africa region. The latest news was that it had cancelled the proposed acquisition of OceanSky and I think the company would still try to spin off the marine business to another entity so that it could achieve a better balance sheet performance and hence could get a better credit ratings. Nonetheless, as it is tapping on a fast grow area in O&G industry, I think the cancellation of the proposed acquisition would give a minimal impact to its whole business expansion strategy.

No. of Outstanding Shares: 1,184,829,936
Market Cap: S$2.7 Billion
Price: 2.31 (closing price of 19 Feb)
EPS (estimated annualized): 13.53 US cents / 17.15 SG cents (based on USD/SGD 1.2677 rate)
Estimated PE Ratio: 13.59X
Net earning growth: 103%

Income Statement Review

The company recorded a record revenue and profit on Financial Year ended 31/12/2013, as both improvement in revenue, gross profit margin and profits from associates. S$160M would be translated to around 13.53 US cents or 17.15 SG cents with trailing PE ratio is 13.59X, which is in a reasonable price range compared to peers. As the PPE items in Balance Sheet grew, the depreciation expenses increased by 174% to US$45M. If we deduct other operating income and gain on disposal of JV, Assets held for sale etc, the CORE operating profit would be around US$106M or EPS of 9.0 US cents / 11.40 SG cents. 

The income tax expenses is very low due to the tax exempted status granted to the company as it is in the specialized O&G industries. The Singapore government welcomes O&G players to setup their business in Singapore, and they gives special tax treatment to companies that fulfill their criteria.

Balance Sheet

PPE grew more than 80% to US$1.46 Billion as the company was expanding quickly in its service rigs business.  Joint Venture value experienced a near to 50% grow as the company seek for a profit growth through JV activities too. Current Ratio dropped to about 1.0X as large part of current liabilities is Financial liabilities (US$223M). Nonetheless, there was a huge improvement in Total Equity as the company had several corporate action in placed on FY2013 (pls see explanation on Corporate Action below) as well as the net profit growth. The Total-Debt-To-Asset ratio is about 61%, which implies a highly leveraged business here.

Cash Flow
Net Cash from operating activities was US$155M, about 70% improvement from corresponding period last year. Nonetheless, the amount is still not able to support the investing activities (about US$733M, mainly used for progress payments made and the deployment of funds towards the purchase and refurbishment of the Group's Service Rigs and partially offset by proceeds from the disposal of joint venture, plant and equipment and assets held for sale ) so the company would have to source the additional cash from financing cash flow of about US$615M.

Corporate Action
During first quarter of 2013, the Company issued 50,000,000 new ordinary shares at an issue price of S$1.895 per share. The newly issued shares rank pari passu in all respects with the previously issued shares. The net proceeds from the placement shares which amounted to approximately US$75 million were used for acquisition of offshore and marine assets. During third quarter 2013, 3,306,000 shares were issued under the Company's Employee Share Option Scheme. The newly issued shares rank pari passu in all respects with the previously issued shares. During fourth quarter of 2013, the Company issued 192,639,398 ordinary shares pursuant to the bonus issue on the basis of one (1) bonus share for every five (5) existing ordinary shares. The newly issued shares rank pari passu in all respects with the previously issued shares. As at 31 December 2013, the share capital less treasury shares of the Company was 1,184,829,936 ordinary shares (1,185,399,936 issued ordinary shares less 570,000 treasury shares). As at 31 December 2012, the share capital less treasury shares of the Company was 909,891,103 ordinary shares (910,461,103 issued ordinary shares less 570,000 treasury shares). As at 31 December 2013, there were 300 redeemable exchangeable preference shares (31 December 2012: 15,900,000) in a subsidiary available for exchange to ordinary shares of the Company.

Company Comments
The management is witnessing increased focus on platform and well related work by the oil majors in Asia
Pacific, Middle East and West Africa. As a result of this focus, the Group will continue to focus on investment in Service Rigs to meet the strong demand. The Group will also explore new ways to restructure its Port and Marine Based business to enable it to concentrate on its current key business activities. Ezion expects more assets to be deployed in 2014. The Group also anticipates to take on new additional Service Rigs projects in the financial year ending 31 December 2014.

My Own View
The company is still experiencing a fast grow in both Service Rigs and Ports & Marine business. So I would think that the future earning growth rate would be easily at 20% until few years later, perhaps 2 / 3 years more. Please note that the share price of this company is quite volatile, so it is good if we could accumulate it when experiencing in a big drop in shares price movement due to unforeseen circumstances and as long as the fundamental is still there.

Projects Clinched/ Letters Of Intention Since Year 2012

Liftboat Projects Clinched since Year 2012. Source: Company, Jack Phang Compilation

P/S: This counter is only suitable for risky investors who seek for capital appreciation as opposed to those who seek for higher dividend yield income. 

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