Ezion Holdings (EZI SP) - Maybank Kim Eng 2016-11-10: Focusing on Balance Sheet Preservation

Ezion Holdings (EZI SP) - Maybank Kim Eng 2016-11-10: Focusing on Balance Sheet Preservation EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings (EZI SP) - Focusing on Balance Sheet Preservation


3Q16 met expectations; but outlook not rosy 

  • Ezion reported 3Q16 net profit of USD9.4m (-69% YoY, +15% QoQ), which we deem as in line. 9M16 adjusted net profit made up 72%/80% of our/consensus FY16E. Still, we cut FY16/17/18E net profits by 29/31/29% to adjust for 
    1. the USD11.7m associate impairment in FY16E which came post its 2Q16 results and 
    2. more delays in contributions from additional units in FY17-18E following management’s guidance on a challenging outlook. 
  • Consequently, our TP dips from SGD0.45 to SGD0.42 but remains pegged to 0.5x FY17E P/BV. We keep our BUY call but warn that re-rating from EPS growth may take time.


No net additions in 3Q, 4Q units may be delayed 

  • One new windfarm unit (unit 8) contributed in 3Q16, but unit 9 was taken out for modification to be redeployed. Therefore net contributing rigs stayed at 17. Five more units are scheduled to be working by 4Q16 but we read that these may drag till early-2017. 
  • Given the delays seen, we are turning more conservative, factoring only 27/30 units by FY17E/FY18E vs 32/35 previously.


Strong cashflows, debt restructuring in the works 

  • Ezion generated strong op. CF and FCF of USD46m and USD36m this quarter. And with USD100m of rights proceeds, net gearing improved QoQ from 1.09x to 0.93x. 
  • We forecast the company will continue to generate positive FCFs over FY16-18E. 
  • Additionally, it is confident of restructuring its bank debts by 4Q16, where four of five banks had already given the initial nod. 
  • It also said it may sell assets, and delay or cancel projects that are no longer economically viable to preserve its balance sheet.


Sufficient liquidity to weather downturn 

  • We believe Ezion will be able to get through the downturn and be an early beneficiary of resumption in sector spending. 
  • Positive FCFs over FY16-18E as capex scales down would provide sufficient liquidity for Ezion to manage balance sheet risks for at least another year of sustained downturn and this would be greatly enhanced if it successfully restructures its bank loans.



Swing Factors


Upside

  • Contributions from 22-23 liftboat units by end-FY16 and 27-28 by end-FY17 could lift revenue significantly.
  • Diversification into windfarm segment could open up new long-term opportunities and reduce reliance on oil and gas customers.
  • Successful restructuring of bank debts could significantly improve cashflows and eliminate refinancing needs for next three years.

Downside

  • Six service rigs operating in Mexico face risk of cancellation. Clients have been slow in payment.
  • Banks withdraw financing support leading to defaults in bonds and debts.




Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-11-10
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.42 Down 0.450




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