Ezion Holdings - CIMB Research 2017-05-14: 1Q17 On Shaky Terrain

Ezion Holdings - CIMB Research 2017-05-14: 1Q17  On Shaky Terrain EZION HOLDINGS LIMITED 5ME.SI

Ezion Holdings - 1Q17 On Shaky Terrain

  • 1Q17 core net profit (pre-perps) of US$0.5m was a big miss vs. our/consensus expectations (US$41m/US$44m).
  • Reported loss of US$12.7m was mainly due to forex losses on unsecured bonds with depreciation of US$/SG$.
  • Elusive pick-up in GPM and JV/associate contributions (on one-off dry-docking expenses by an associate) widened the negative variance to our estimates.
  • Given the weak 1Q17 and weak outlook, we cut FY17-19F EPS by 40.5-76.6%
  • Downgrade to REDUCE (from ADD) at TP of S$0.26. While stock is trading at trough valuations, we expect investors to shy away until quarterly figures improve.

A forgettable quarter 

  • 1Q17 revenue of US$68.6m (-16.4% yoy; -5.6% qoq) continued to slide as one more unit became un-deployed in 1Q17. Ezion said 14 units were operating in 1Q17 (vs. 4Q16:15), as another vessel contract failed to be extended. 
  • GPM margins stagnated at 12.8% pressured by depreciation and maintenance of unchartered vessels. 
  • A foreign exchange loss of US$13.7m on Group’s Note Payables was due to the appreciation of SG$ vs. US$, which led to the reported net loss of US$12.7m.

Operating conditions are tough; fleet deployment reduced 

  • Management reduced guided fleet deployment to 16 units by 1H17 and 21 by end-17 (from 18 and 22 previously) as Ezion continues to see delays in delivery to clients who opt to postpone maintenance schedules given the uncertain market conditions.
  • Moreover, it faced some hiccups with one of its subcontractors (which are purportedly facing financial difficulties) for a Chinese unit that it is currently refurbishing, leading to delays in its deployment which is now expected within 2H17.

Turning negative 

  • We initially expected sequential financial improvement in 2017, with vessel deployments picking-up and non-recurrent non-chargeable refurbishment and mobilisation costs. However, management’s negative undertone suggests otherwise. 
  • We have reduced our FY17-19F EPS by 40.5-76.6% with main cuts largely driven by lower FY17/18/19F GP margins of 17.2%/19.9%/21.2% (vs. 23.4%/23.1%/24.2%). 
  • We have also cut our FY17- 19F revenue by 19.7-21.8% as we were previously over optimistic on DCRs.

FY18-19F real concern without vessels pick-up 

  • Ezion reported operational cashflow of US$26.0m and cash position of US$187m in 1Q17, which we believe is sufficient to cover capex needs of US$100m. Moreover negotiated debt repayment based on received operational cashflows could alleviate near-term concerns. However, FY18-19F could be real going concern issue if vessel count does not improve as Ezion has bond redemptions of US$42m/113m respectively.
  • Also, if conditions do not improve we expect more impairment risks emerging.

Downgrade to REDUCE, TP of S$0.26/share 

  • We downgrade our call on the stock to REDUCE (from ADD) and cut our TP to S$0.26 (from S$0.45), based on FY17F P/BV of 0.3x (from 0.5x previously). 
  • Our valuations represent a 50% discount to the -1 s.d. level of 0.6x given management’s negative undertone. 
  • While the stock is currently trading at trough valuations of 0.35x, we foresee investors shying away until quarterly figures improve.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-05-14
CIMB Research SGX Stock Analyst Report REDUCE Downgrade ADD 0.26 Down 0.450