Ezion Holdings reported a 7.4% YoY drop in revenue to US$79.8m and a 69.1% drop in net profit to US$9.4m in 3Q16, mainly due to lower gross profit margin of 17.5% in the quarter vs. 21.3% in 2Q16 and 29.0% in 3Q15. A reason for this was the deployment of additional service rigs which could have included mobilisation costs. Results were within expectations, as management had previously guided a lacklustre 3Q16.

As Ezion is modifying a few more of its existing service rigs and taking delivery of two or three new units by the end of 2017, managing its cashflow and gearing is imperative. As such, it may 1) dispose at least another existing service rig, 2) delay or cancel a few of its past committed projects that no longer make economic sense, and 3) invite potential JV partners to co-own assets.

Pending an analyst briefing later, we maintain our HOLD rating but put our fair value estimate of S$0.35 under review.

Source: OCBC Research - 10 Nov 2016