Ezion Holdings reported a 4.6% YoY fall in revenue to US$90.1m and a 9.4% drop in net profit to US$41.0m in 1Q15, such that the latter accounted for 18.0% and 17.0% of ours and the street’s full year estimate, slightly below our expectations. For the five units up for renewals this year, two have been renewed at the same rate, while a third has enjoyed a 8-9% rate rise as it will be deployed in another geographical area. We lower our FY15/16F earnings estimates by 16% and 12% to take into account the minimal activity in the offshore logistics segment in Australia, as well as delay in start dates for certain units due to modification work. This lowers our fair value estimate to S$1.55, based on 9x FY15/16F earnings. Despite this, Ezion has proven to be relatively resilient versus its peers in terms of earnings, and we expect this to remain so. Maintain BUY.
First YoY decline in 31 consecutive quarters
Ezion Holdings reported a 4.6% YoY fall in revenue to US$90.1m and a 9.4% drop in net profit to US$41.0m in 1Q15, such that the latter accounted for 18.0% and 17.0% of ours and the street’s full year estimates. This represents the first YoY decline after 31 consecutive quarters of rising profit. Though more assets are expected to be deployed in the year, supporting earnings for later quarters, we judge this set of results to be slightly below expectations as the Offshore Logistics segment in Australia saw a greater-than-expected fall in activity. With a challenging operating environment, several of the group’s service rigs have been “made to work at their limits” resulting in more wear and tear and higher maintenance, and additional cost was incurred to further upgrade a few newer units to meet clients’ additional requirements.
More optimistic on rate renewals
Recall that five units are up for rate renewals this year, and as mentioned in our earlier report, we were expecting them to be similar or at most 5% lower. Two have been renewed at the same rate, while a third has enjoyed a 8-9% rate rise as it will be deployed in another geographical area. The remaining two units are also likely to be renewed at the same rate.
In Ezion’s fleet, we estimate that only five rigs (three on JV with Swissco) are used for drilling. The rates for the remaining units are expected to remain supported by ongoing demand.
Best of the lot
We lower our FY15/16F earnings estimates by 16% and 12% to take into account the minimal activity in the offshore logistics segment in Australia, as well as delay in start dates for certain units due to modification work. This lowers our fair value estimate to S$1.55, based on 9x FY15/16F earnings. Despite this, Ezion has proven to be relatively resilient versus its peers in terms of earnings, and we expect this to remain so. Maintain BUY.
Ezion Holdings reported a 4.6% YoY fall in revenue to US$90.1m and a 9.4% drop in net profit to US$41.0m in 1Q15, such that the latter accounted for 18.0% and 17.0% of ours and the street’s full year estimates. This represents the first YoY decline after 31 consecutive quarters of rising profit. Though more assets are expected to be deployed in the year, supporting earnings for later quarters, we judge this set of results to be slightly below expectations as the Offshore Logistics segment in Australia saw a greater-than-expected fall in activity. With a challenging operating environment, several of the group’s service rigs have been “made to work at their limits” resulting in more wear and tear and higher maintenance, and additional cost was incurred to further upgrade a few newer units to meet clients’ additional requirements.
More optimistic on rate renewals
Recall that five units are up for rate renewals this year, and as mentioned in our earlier report, we were expecting them to be similar or at most 5% lower. Two have been renewed at the same rate, while a third has enjoyed a 8-9% rate rise as it will be deployed in another geographical area. The remaining two units are also likely to be renewed at the same rate.
In Ezion’s fleet, we estimate that only five rigs (three on JV with Swissco) are used for drilling. The rates for the remaining units are expected to remain supported by ongoing demand.
Best of the lot
We lower our FY15/16F earnings estimates by 16% and 12% to take into account the minimal activity in the offshore logistics segment in Australia, as well as delay in start dates for certain units due to modification work. This lowers our fair value estimate to S$1.55, based on 9x FY15/16F earnings. Despite this, Ezion has proven to be relatively resilient versus its peers in terms of earnings, and we expect this to remain so. Maintain BUY.
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