SINGAPORE (Dec 2): CIMB Research is calling an “add” on Ezion Holdings with an unchanged target price of $2.04.

In a report dated Nov 27, analyst Yeo Zhi Bin says Ezion’s success in persuading national oil companies in this region to adopt the liftboat concept looks set to continue but catalysts could come from further orders.

To be sure, 2014 has been a mediocre year for Ezion as it struggled with project slippages, says Yeo. However, the company is seeking to get a better handle on projects by taking a controlling stake in a yard to better manage the projects.

After its 3QFY14 results, CIMB had cut its FY14-15 EOS forecasts by 15-16% as the house conservatively push back deliveries. Still, it is forecasting a three-year core EPS of 31% over 2013-16. Meanwhile, Ezion’s efforts to persuade national oil companies in Southeast Asia to use its liftboats/service rigs as an alternative maintenance solution is bearing results. “With the deployment of another 11 units on top of the existing fleet of 22 at end-2014, we expect Ezion’s FY15 core earnings to jump 24% to US$251 million,” says Yeo.

In 2015, Ezion will be focusing on time charter contracts in Southeast Asia and investing in more newbuild liftboats to replace its ageing jack-up rigs. Yeo believes Ezion’s competitive edge will be sharpened by its offering of one-stop solutions and higher value services.

Furthermore, Yeo likes its shift to newbuilds as this reduces re-contracting risks, as opposed aged service rigs. “We also think that the spin-off of its Port Melville into Ausgroup will allow the company to focus fully on its core offering of service rigs while capturing business opportunities through its associates,” says the analyst.

On top of what has been announced, CIMB is also assuming three additional service rigs from 4Q15 and another three from early-2016. Ezion recently raised $150 million 7% perpetual securities which should comfortably fund its fleet expansion. CIMB is forecasting a three-year core EPS CAGR of 31% over 2013-16, after an examination of future deliveries.

“Ezion is trading at 6.8x CY15 P/E (1 s.d. below its 5-year mean) vs. 38% core EPS growth for 2016. In terms of P/BV, it is trading 1.5x CY14 (1 s.d. below its 5-year mean) vs. forward ROE of 20%,” says Yeo, “Our FY14-16 forecasts, blended P/E and P/BV target price (implied 7.4x CY16 P/E and 1.8x CY15 P/BV) and Add rating are unchanged.”

Ezion is up 4.5% to $1.165 at 3:14 p.m. local time.