• US$30.3m net profit in 3Q15
• Net addition of three units by year end
• Undemanding valuations

3Q15 results within expectations

Ezion Holdings reported a 9.1% YoY drop in revenue to US$86.2m and a 38.7% fall in net profit to US$30.3m in 3Q15, such that 9M15 net profit came up to US$100.3m, representing 78% of our full year forecast (US$128m), in line with expectations. This was, however, below the street’s estimates – Bloomberg’s net profit consensus was US$150m for the full year.

18 units operational in 3Q; net addition of 3 by year end

One additional service rig (Unit 36) went into operation in 3Q15 in SE Asia, but another two units went off-hire (Unit 8 and Unit 11). Recall that Ezion had earlier partnered Atlantic Marine Services for charter of these units to Maersk. Of the 18 units that were operational in 3Q15, Ezion saw an 83% utilisation rate, compared to 99% in 2Q15.

Looking ahead, management expects utilisation rate to be generally stable; the risk on the bottom-line would be additional requirements and modifications from customers that incur capex. By the end of this year, the group expects five additional service rigs to be added to the fleet with another two removed, resulting in a net addition of three units.

Surviving relatively well in a tough environment

Lower oil prices have reduced operating expenditure and clients have become more demanding in their requirements; the group continues to seek to fulfil such requests by interchanging its units among clients and through strategic modifications and upgrades, as mentioned in our earlier report.

Under such circumstances, it would not be surprising to us if the group were to seek to diversify from the oil and gas industry. For instance, Gulf Marine Services (GMS), which is a close peer, has exposure to the renewable energy sector, as some of the units carry out wind turbine transport and installation work.

Despite the tough environment, the group’s results were within expectations, and we expect 4Q15 to be a comparable quarter to 3Q15 (barring unforeseen circumstances). Maintain BUY with S$1.05 fair value estimate (based on 7x FY16F earnings).

Source: OCBC Research - 13 Nov 2015