Maybank Kim Eng 2015-08-14: Ezion Holdings - 2Q15 missed; Liftboat Demand Intact. Maintain BUY.


Liftboat Demand Intact 

  • 2Q15 missed on lower gross margins, with additional costs from several operational issues. Cut EPS by 17-38% for costs, deployment delays & allowances for off-hires. 
  • No contract cancellations. Four of five expiring contracts renewed. 
  • Maintain BUY with TP lowered from SGD1.55 to SGD1.35, now at 1.0x FY16 P/BV from 1.2x. Expect catalysts from 4Q15/1Q16 sequential earnings jump. 

What’s New 

  • 2Q15 PATMI of USD29.0m (-36.3% YoY, -29.4% QoQ) missed expectations. 
  • 1H15 PATMI of USD70.0m (-22.9% YoY) formed 30/34% of our/consensus FY15F. 
  • 2Q15 gross margins retreated 11.2ppts QoQ to 34.9%, under: 
    1. higher crew costs for Unit 24 (Sunrise) in Australia due to union issues, which Ezion is trying to resolve; 
    2. the idling of six units in 2Q15 for repair, upgrades and dry-docking; and 
    3. a higher proportion of lower-margin time-charter contracts. 
  • Nineteen liftboats contributed in 2Q15, up from 17 in 1Q15. 

What’s Our View 

  • Ezion will inter-switch seven of its liftboats in 2Q-3Q15 for more efficient deployment and to meet clients’ demands. 
  • This will create contribution gaps, but reduce overall capex and costs that it may otherwise have to incur. 
  • Importantly, there have not been any contract cancellations. In fact, four of five expiring contracts have been renewed. 
  • Operational vessels are 99% utilised, a testament to its relative resilience. 
  • We cut FY15-17 EPS by 20-34% for additional costs, deployment delays and off-hires in FY16-17, to be conservative. 
  • Net gearing could rise to 1.1x by year-end but it has been able to access funding with a recent SGD120m bond issue at only 3.65%. 
  • Despite our lowered numbers, we forecast that FCF yields could still approach 12% in FY16. 
  • 4Q15/1Q16 sequential earnings jump possible with eventual deployment of idling units. 
  • Maintain BUY, TP lowered from SGD1.55 to SGD1.35. This is now at 1.0x FY16 P/BV instead of 1.2x, due to increased bearish sentiment on the sector.

Yeak Chee Keong CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
BUY Maintain BUY 1.55 Down 1.35