Ezion

Ezion: (S$0.68) Weak 3Q15 weighed by service rigs & Australian project delay

Ezion’s 3Q15 results missed expectations as net profit sank 38.7% y/y to US$30.3m, bringing 9M15 earnings to US$100.3m (-28.4%), attaining just 66.1% of full year street forecast.

For the quarter, revenue slipped 9.1% to US$86.2m mainly due to the continued absence of contribution from its Australian marine and offshore logistic support services division as projects in Queensland have been delayed since the start of the year.

Gross margin shrank to 29% from 51.1% in 3Q14 as the group incurred additional expenses for the deployment of additional service rigs. This led to a 48.4% plummet in gross profit to US$25m.

Bottom line was affected by:
1) FX gain of US$7.5m (+211.9%) on the stronger USD
2) Higher contributions from associates and JVs of US$9m (+58.2%)
3. Net finance costs of US$5.9m (+58.7%) arising from lower interest income and higher finance costs associated with funding newly delivered service rigs.

Net gearing jumped to 1.08x (2Q15: 0.93x) as the group issued $120m worth of corporate notes in Aug ‘15 and drew down on more bank borrowings to finance construction, conversion, and refurbishment of its service rigs. Interest coverage ratio was stable at 4.7x (2Q15: 4.5x).

Management notes that while oil majors are cutting capex on exploration and development activities, they have also cut opex on extraction and production related activities prompting increased demand for a higher standard of equipment and services.

This has in turn crimped its margins from service rigs as the group have to swap units and put rigs through additional modifications and upgrades to meet those requirements.

The counter is currently trading at a trailing P/E of 4.1x and 0.6x P/B.