• Offshore windfarm a still-growing segment
• Converting units to seize opportunities
• Windfarm units may contribute in 3Q

Opportunities in offshore windfarms

With the downturn in the oil and gas industry, offshore players are increasingly looking at the offshore windfarm industry for vessel deployment and newbuild opportunities. Among the SGX-listed companies, Ezion Holdings has three liftboats/service rigs being converted into windfarm units, of which two are expected to start revenue contribution in 3Q16.

Keppel Corp has delivered the Seafox 5, a multi-purpose selfelevating platform for wind turbine installation and maintenance. Keppel Verolme has also built a mobile offshore accommodation barge for a German wind farm. Sembcorp Marine has designed and built an offshore substation platform for the Dudgeon Offshore Wind Farm, amongst other work.

Looking ahead, it will not be surprising if more offshore players pursue opportunities in this still-growing segment.

Units chartered on a project basis

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 for a specified period of time, and if the work finishes earlier, there will be cost savings on Ezion’s part.

If the work finishes later, there will be additional costs (mostly crew costs), but this is unlikely to be as large as EPCIC providers such as Swiber and McDermott which could see significant cost overruns.

Generating positive OCF, but environment is still tough

Net gearing remained at 1.1x in 1Q16, and Ezion generated operating cash flows of US$30.9m in the quarter; 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 peers. Looking ahead, we expect continued difficulties in collecting payments from customers for the next two quarters, which is an industry-wide issue.

Meanwhile, despite Ezion’s attempts to diversify, the operating environment is expected to remain difficult in view of the depressed state of the group’s core sectors.

As such we maintain our HOLD rating with an unchanged S$0.55 fair value estimate; investors may choose to accumulate at S$0.49 or lower.

Source: OCBC Research - 22 Jun 2016