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OCBC Investment 2015-08-14: Ezion Holdings - 2Q15; Learning To Be An Operator.

EZION HOLDINGS LIMITED 5ME.SI

LEARNING TO BE AN OPERATOR 

• Weaker than expected 2Q15 
• Lower utilisation with interchanges 
• Lowering FV to S$1.05 



2Q15 results below expectations 

  • Ezion Holdings reported a 2.8% YoY decline in revenue to US$90.0m and a 36.3% drop in net profit to US$29.0m in 2Q15, such that 1H15 net profit accounted for 37% and 34% of ours and the street’s full year estimates, respectively. 
  • Results were below expectations; gross profit margin was 35% vs. 51% a year ago, and 46% in 1Q15. Revenue was lower as: 
    1. there was the absence of contribution from the marine and offshore logistics support services segment as projects in Queensland, Australia did not go into additional trains as originally expected, 
    2. the group interchanged a few of its service rigs among its existing clients, such that gaps of idle units may be created in the interim, 
    3. modification and repair work also led to extra costs and delay in deployment of units – this not only reduced margins but also deferred the start date of revenue contribution. 

Lower utilisation of fleet; rates remain strong 

  • Due to the above factors, fleet utilisation (number of working rigs over the total number of rigs delivered) declined from 81% in 1Q15 to 75% in 2Q15. There were 25 units that have already been delivered in 2Q15, compared to 22 in 1Q15. 
  • Meanwhile, recall that five units are up for rate renewals this year, and four have been renewed at similar rates, illustrating the resilience in demand for the group’s units. 

Not immune to the negative sentiment 

  • Taking into account the above factors, we lower our revenue and margin assumptions for FY15/16F, such that our earnings estimates drop by 12-33%. 
  • Due to the recent leg down in oil price, valuations across the sector have also fallen, and we lower our P/E from 9x to 7x blended FY15/16 earnings, such that our fair value estimate falls from S$1.55 to S$1.05. Given the upside of about 37%, we maintain our BUY rating on the stock.


Low Pei Han CFA | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-14
BUY Maintain BUY 1.05 Down 1.55


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