SINGAPORE (Feb 24): CIMB Research is maintaining its “add” rating on Ezion Holdings with a raised target price of 45 cents from 44 cents previously, even as offshore service provider on Thursday reported a widening of new 4Q losses to US$66.6 million from US$63.5 million a year ago.
FY16 revenue of US$318.2 million was down 9.4% from US$351.1 million in FY15, as two of the group’s vessels were off-hire in 4Q16.
(See also: Ezion’s 4Q losses widen to US$66.6 mil)
“We estimate average fleet size fell to 16.5 vessels in FY16 (FY15: 18) due to lack of contracts (charter rates were too low) and delays in refurbishment (for two rigs earmarked for China), resulting in a stagnate fleet. Management now guides for deployment of 18 vessels in 1H17F and 22 by end-FY17F,” comment analysts Cezzane See and Lim Siew Khee in a report on Thursday.
They also note that Ezion’s FY16 core net profit of US$16.1 million missed CIMB’s forecast due to impairments for plant & equipment and trade receivables.
“We understand near-term impairments of assets from its Swissco JV may not be as high as US$87 million on the basis that Ezion will still be operating the vessels (vs. Swissco disposing of the business),” say the analysts.
The group has chosen not to proceed with the delivery of four rigs, worth about US$270 million in total, in order to preserve cash.
Its management has guided that is has completed its debt restructuring, and has negotiated to repay debt according to its operational cashflow – which See and Lim say is a better solution from the group’s previous strategy of extending loan tenures from five to eight years, as the new strategy now provides Ezion flexibility in loan repayment, in their view.
“Having said that, we believe Ezion is giving itself breathing space in view of the upcoming bond repayment in FY18F,” they add.
As such, the analysts think the group’s impairment and cashflow risks have now been mitigated, and hence foresee investors “becoming more comfortable taking position in Ezion”.
As at 3.20pm, shares of Ezion are trading 1.6% lower at 38 cents.
