Why Ezion's newly secured LOI won't have a heavily positive impact

Contribution offset by regional project delays.

Research firm OSK-DMG notes that the positive impact from Ezion's newly secured LOI, which is seen to have a high return, will be offset by the delays it faces in its Myanmar and Vietnam projects.

Here's more from OSK-DMG:

The positive impact from Ezion’s newly secured LOI is offset by delays in its projects in Myanmar and Vietnam. Separately, Ezion issued SGD30m worth of REPS, which upon full conversion will dilute its existing share base by 1.43%. We revise our FY13/14/15F EPS by -4.7%/- 1.5%/+2.4% to incorporate the latest project schedule and higher interest expenses. We remain positive on Ezion for its 47% EPS CAGR over FY12-FY15F.

Project return on new contract remains high. Ezion has secured a new Letter of Intent (LOI) valued at USD82.1m from a national oil company in South-East Asia to provide a liftboat for five years. Ezion will invest USD60m in a new liftboat with deployment expected in 1Q15. The capex will be funded by the issuance of redeemable exchangeable preference shares (REPS) and bank borrowings. Project return remains attractive and we estimate the latest LOI to deliver a first-year net profit of USD9.5m and >60% ROE.

Two projects delayed but another ahead of schedule. Management highlighted that its two projects for deployment in Myanmar and Vietnam have been delayed. While the delay in the Myanmar project is nothing new, it is longer than we expected as we had previously forecast charter income to come in from July onwards. We now revise the timeline to November. As for the Vietnam liftboat, Ezion is guiding for a three-month delay from Jan to April 2015. The negative impact from the delays in the two projects is mitigated by the early deployment of one JV service rig (unit 26) by two months.

Earnings revisions. We revise our FY13/14/15F EPS forecasts by - 4.7%/-1.5%/+2.4% to reflect: i) five-month delay in the Myanmar project in FY13, ii) three-month delay in the Vietnam newbuild project, iii) deployment of the JV rig two months ahead of schedule, and iv) higher interest expense from the issuance of the REPS. We still expect to see +47% EPS CAGR over FY13-FY15F.