Ezion Holdings - OCBC Investment 2017-02-23: Garners Bank Support

Ezion Holdings - OCBC Investment 2017-02-23: GARNERS BANK SUPPORT EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings - GARNERS BANK SUPPORT

  • Impairments and provisions in 4Q.
  • Negatives largely priced in.
  • Good support from banks.



4Q16 hit by impairments 

  • Ezion Holdings reported a 14.3% YoY decline in revenue to US$72.6m and a net loss of US$66.6m in 4Q16 vs net loss of US$63.5m in 4Q15, dragged by impairment losses and provisions for trade receivables of US$70.9m, offset by US$20m of forex gains (due to SGD weakness). 
  • For the full year, the group saw a net loss of US$33.6m; we estimate core net profit to be about US$23m, below our expectations, as two units were unexpectedly taken out of the fleet in 4Q16. One went for repair while the other was redeployed to another location.


Reducing capex needs 

  • As mentioned in our earlier report, Ezion may delay or cancel a few of its past committed projects that no longer make economic sense under current oil prices. The group has updated that it will be reducing its originally planned capex by about US$270m with the indefinite postponement of four units of service rigs (two refurbished, two new) that were previously announced on 15 Apr 2014, 15 Jul 2014 and 15 Sep 2014. This would reduce the cash outflows required to take delivery of the units and the corresponding bank loans needed. 
  • For 2017, management has guided that about US$110m of capex would be spent.


Support from the banks 

  • Ezion has also completed discussions with all its bankers to reduce its net annual principal repayment to match the group’s operating cash flows upon the completion of the legal documentation of the loan extension. 
  • It has also renewed its working capital facilities with all its principal bankers. 
  • Meanwhile, the group’s issue of S$120m 3.65% notes (committed funding with a local bank’s support) due 2020 has also been assigned a rating of Aa1 by Moody’s.


Undemanding valuations 

  • As of 4Q16, Ezion had 26 completed service rigs, of which 15 were working. The latter figure is expected to rise to 18 by 1H17 and 22 by end of this year, based on management’s guidance. 
  • Meanwhile, we also await updates regarding the JV with Swissco for possible impairments.
  • That said, the stock’s current low valuation has largely priced in the negatives, and we maintain our BUY rating with S$0.54 fair value estimate, based on 0.6x FY17F book.




Low Pei Han CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-02-23
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.540 Same 0.540



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