• Decent results
• Still among the healthier ones in the sector
• Windfarm units may contribute in 3Q

1Q16 results in line

Ezion Holdings reported an 8.9% YoY fall in revenue to US$82.1m and a 62.2% drop in net profit to US$15.5m in 1Q16, accounting for 25% and 20% of our full year estimates, respectively. Core net profit represented 22% of our full year figure, and results were within expectations.

Gross profit margin was 25.2% in 1Q16 vs. 23.8% in 4Q15 and 46.1% in 1Q15, as utilisation levels and day rates were affected by the downturn in the industry. Certain units are also undergoing modification to be deployed for other uses like windfarm work; two windfarm units are expected to start contributing in 3Q16.

Still generating positive OCF; sticks to debt repayment schedule

Net gearing remained at 1.1x, same as the previous quarter, and the group generated operating cash flows of US$30.9m in 1Q16; we note that Ezion has been generating positive operating cash flows each year (US$91m in FY12, US$155m in FY13, US$214m in FY14, US$209m in FY15), which is a credible performance compared to others in the industry.

Looking ahead, we expect the group to continue experiencing difficulty in collecting payments from customers for the next two quarters, which is an industry-wide issue. Meanwhile, we note that Ezion has kept to the same repayment schedule for its bank loans, unlike others that have requested longer tenors in their debt restructuring.

Always thinking out of the box

With regards to the windfarm projects, it will be the first time that Ezion is not undertaking bareboat or time charter contracts. Instead, the units are chartered on a project basis (more details behind). The group also recently completed the acquisition of Rotating Offshore Solutions as there are plans to convert existing assets into mobile offshore production units.

However. despite the attempts to diversify, the operating environment is expected to remain difficult in view of the depressed state of the group’s core sectors. We tweak our USD/SGD assumptions slightly and our fair value estimate eases from S$0.56 to S$0.55.

Maintain HOLD; investors may choose to accumulate at S$0.49 or lower.

Source: OCBC Research - 13 May 2016