Ezion Holdings: Positive development for Gorgon

Gorgon clears state government regulatory hurdle. It was reported this week that the Western Australian government has granted final state government's environmental approval for the Gorgon project, with the Australian Federal government's approval as the final regulatory hurdle remaining. This is a positive development, as the Gorgon project has been delayed several times in the past years. We believe that the Federal government's approval is a formality, and the market's anticipation of this news could be a near term price catalyst.

Earnings risks still exist, albeit reduced. While this Gorgon project development has reduced a major earnings risk to Ezion, we note that two of the group's four liftboats are still under MOUs. While Ezion has a firm bareboat charter contract with Ezra Holdings for the other two liftboats, the latter has yet to announce firm time charter contracts for these vessels and may still request for vessel delivery delays.

Better-than-expected 2Q09 results. Ezion's recurring net profit came in at S$4.5m (+103% y-o-y) in 2Q09, on revenues of S$21.1m (+195% y-o-y), mainly due to an expanded vessel fleet. The outperformance vs. our estimate of S$3.5m is attributable to greater contributions from the Marine Services division and lower than expected start up costs for the Gorgon project. We have hence raised our FY09 recurring net profit forecast by 18% to S$15.0m to factor in these deviations.

Raising fair value to S$0.94; maintain BUY. On the back of lowered earnings risk from the recent positive newsflow on the Gorgon project, we have pegged Ezion＊s TP to a higher 12x recurring FY10 PE (prev 10x), raising it to S$0.94. Maintain BUY.

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