AusGroup: Ezion Marine Base Changes LNG Fortunes (BUY, S$0.52, TP: 
S$0.73)


Last week, Ezion announced that it has received endorsements to 
develop a marine supply base to support the offshore oil &  gas scene in 
Australia. This is a critical factor which had been delaying the award of 
LNG-related contracts, and with the marine base starting operations by 
September this year, contracts should start flowing again. We think the 
recent 25% correction is overdone, presenting an extremely attractive 
entry point. 
Lack of staging ground for offshore projects now resolved. We 
understand that the lack of a staging ground was a critical reason for the LNG 
project delays. The offshore projects required clear land, warehousing facilities, 
space for welding / painting / other jobs, and a deepwater jetty. Ezion’s marine 
base will remedy this lack, and set the stage for these projects to proceed. 
Ezion marine base supports four major offshore projects. The marine 
base will support the super-massive USD34b Ichthys LNG project, Shell’s FLNG 
Prelude project, and the Bonaparte LNG and Montana projects. 
Expecting order flow-through. AusGroup now has a record AUD4.5bn tender 
book, dwarfing the AUD0.6bn of tenders at Dec-12. The build-up of the tender 
book was due to the delays of the contract awards, and we expect AusGroup to 
convert about 20% of its tenders into firm contracts, providing good-margin 
work for 2H13 through FY15F. Further, this week Upstream noted that Ensco 
has been awarded the final Ichthys drilling contract. 
25% correction overdone  extremely compelling valuations. AusGroup’s 
shares have come off 25% since its recent peak, and now trades at 6.9x FY13F 
EPS, 1.1x P/B, with an EV/EBITDA under 3.0x (based on current price of 
SGD0.50). These are extremely compelling valuations for a company growing at 
20% EPS CAGR to FY15F, ROE consistently above 15%, and a strong net cash 
position of SGD0.054 per share. We believe that the reaction to the poor 2Q13 
results (which included one-off expenses and variation orders) is severely 
overdone, and this is the time to enter. Our TP of SGD0.73 is based on 9x 
blended FY13F/FY14F EPS. BUY.  

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