Ezion Holdings - OCBC Investment 2016-03-01: Postponing Deliveries; Seeking Other Opportunities

Ezion Holdings - OCBC Investment 2016-03-01: Postponing Deliveries; Seeking Other Opportunities EZION HOLDINGS LIMITED 5ME.SI 

Ezion Holdings - Postponing Deliveries; Seeking Other Opportunities 

  • S$81.1m impairments and provisions 
  • Other uses like windfarms and MOPUs 
  • Bonus issue of free warrants 

• 4Q15 hit by impairments and provisions 

  • Ezion Holdings reported a 19% YoY fall in revenue to US$84.8m and a net loss of US$63.5m in 4Q15, hit by impairment losses on PPE and provision of trade receivables amounting to US$81.1m (50-50 split). This brings full year net profit to US$36.8m; we estimate core net profit of about US$109m vs. US$188m in FY14. 
  • Looking ahead, management does not foresee any more asset impairments for this year, unless the market environment worsens further. Ezion has been looking to redeploy its assets to other uses like windfarm installation, and due to the change of use, asset impairment tests also have to be undertaken. 

• Postponing delivery of six units; conversion to other uses 

  • Ezion has postponed the delivery of six service rigs and there is mutual agreement with clients, yards and banks. 
  • There are also plans to convert existing assets into mobile offshore production units (MOPU) with the help of Rotating Offshore Solutions (Ezion acquired a 30% stake in the company last year); we believe that there could be the possibility of ROS owning a fleet of its own eventually. 

• Proposes free warrants bonus issue 

  • Meanwhile the group has proposed a bonus issue of up to 323.9m free warrants, each warrant carrying the right to subscribe for one new share within four years from issuance date at an exercise price of S$0.50. These warrants will be allotted to shareholders on the basis of one warrant for every five existing shares as at book closure date. 
  • Assuming all warrants are exercised, Ezion will receive gross proceeds of about S$161.97m. 

• Late-paying clients and rate reductions 

  • Like many other oil and gas related companies, Ezion’s clients are also not paying on time, with MNCs/IOCs (vs. national oil companies) still the better paymasters at about three months late. 
  • The group’s net gearing was 1.1x vs. 0.9x in FY14 and 1.2x in FY13, while operating cash flows remained healthy at US$208.9m in FY15 compared to US$213.5m in FY14, but going forward, we see that the group’s financial position could be tested by late-paying customers, and potential reduction in charter rates (should the market worsen). 
  • Maintain HOLD with S$0.56 fair value estimate, based on 0.45x FY16F NTA.

Low Pei Han CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-03-01
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.56 Same 0.56