Ezion may be hit with more losses as capex soars, analyst says

Current cost of sale at $65.9m already hurt its profit.

Analysts are not keeping their hopes up for Ezion’s third quarter results, and they have another reason to stay downbeat in their outlook: the firm’s capex are predicted to shoot through the roof as maintenance and upgrade jobs are in the pipeline.

"Downside catalyst this year may be further write-downs, higher than expected capex due to maintenance and upgrade works, and delays in receivables collection that may put pressure on its balance sheet," KGI Fraser Securities Analyst Joel Ng said in a report.

Ezion registered a higher cost of sale and servicing for 2Q16 due to the deployment of additional rigs, spiking a 12% increase. This reduced the company's net profit by 31.5% for the second quarter this year.

More so, Ng said the rig markets are now under an intense pressure from overcapacity, and Ezion is more than possible to be affected with the heightened chance of risks.

Quoting data from Rigrolix, he explained that the overall utilization rates for jackups have already fallen to 60%. In Southeast asia, jackup utilization have fallen to as low as 30% from 64% last year.

"There are still are around 100 new jackups due for delivery over the next four years we which we expect to increase downside risk for utilization when they come into market," the analyst added.

Meanwhile, OCBC Investment Research reported that there seems to be no light at the end of the tunnel for Ezion, as its 3Q16 would likely reflect the same performance the group had in 2Q16.

"Ezion expects to generate more cashflows in 4Q16 as about four of its units should be deployed by then. For 3Q16, however, we are more circumspect and expect core operating results should be similar to 2Q16. It would also not be surprising if the group takes the chance to refinance some of its short-term debt in 3Q16, considering that it has not done so since the onset of the oil crisis," the report said.