Ezion

Ezion’s 2Q15 results were widely off the mark as net profit sank 36.2% to US$29m, bringing 1H15 earnings to $70m (-22.9%), making up just 34% of full year street forecast.

For the quarter, revenue slipped 2.8% to US$90.1m due to the continued absence of contribution from its Australian marine and offshore logistic support services division as projects in Queensland were delayed since 1Q15.

Gross margin was knocked back 16.2ppt to 34.9% as the group incurred additional expenses to modify and repair several service rigs before deployment. This led to a 33.7% plunge in gross profit to $31.4m.

Bottom line was further weighed down by a 12.9% jump in administrative expenses due to an increase in staff strength as well as a 28.2% spike in finance costs.

Net gearing notched up to 0.93x (1Q15: 0.88x) as the group took on more debt to fund newly delivered service rigs. Consequently, interest coverage ratio slid to 4.5x (1Q15: 8.1x).

Management guided that FY15 earnings may be weaker than FY14 due to its decision to inter-change a few of its service rigs among clients resulting in interim gaps. Notwithstanding the very tough operating environment, the group is working hard to deploy its idle service rigs in 2H15.

Notably, its service rigs are focused on the production side of the oil value chain rather than exploration and development, which is facing the brunt of the budget cuts by oil majors.

Ezion is currently trading at 0.87x P/B. Current Consensus P/E estimates are no longer meaningful given the likelihood of sharp downgrades following the results.