Tuesday, July 10, 2007

Ezra - Announcement of Charter Contracts worth US$127 Million

This evening, Ezra announced charter contracts for 10 of its vessels, worth potentially US$127 million (about S$194 million). The latest charters come at "improved rates" and shows the "continued strength in the oil and gas sector", said Mr. Lionel Lee (CEO of Ezra Holdings). One good point to note is that Lewek Stork will be the 2nd AHTS to be chartered by the same client (client name not mentioned) and it will be used in India, which is one of the markets Ezra is targeting to enter.

Ezra is chartering 8 vessels from its existing fleet consisting of 5 AHTS and 3 AHT to various oil majors in South-East Asia. It is not immediately clear if these 8 vessels were previously already on charters which have expired, or if these are new vessels which have come on board recently and are awaiting charter confirmations. The value of the charters for these 8 vessels is about US$69 million (S$106 million) and are for a period of 5 years, with extension options. This would indicate that this revenue stream will continue for at least 5 years till FY 2012. However, what is not clear is what proportion of this revenue would be recognized in FY 2007, and whether the US$69 million relates to revenues per year, or over the 5-year charter period. Perhaps it would be good to clarify this with Management should I have the chance (perhaps at the EGM).

As for the remaining 2 vessels, Ezra is negotiating charter contracts worth US$58 million on a 3-year charter contract basis. These 2 vessels are new vessels which will come on board in the early part of FY 2008 (which may mean as early as Nov-Dec 2007). I would hazard a guess that the vessels should be ready by late calender year 2007 as most charter contracts for new vessels are signed 2-3 months before the vessel is delivered (as per Management's assertion).

For now, it is not possible to quantify the impact of these new charter contracts as the duration and revenue recognition breakdown was not stated. In addition, the recent award of the contract with ConocoPhillips also did not state the contract amount and duration due to confidentiality reasons. This makes valuing the company all the harder, what with the impending vendor share sale of 42% of EOC Limited as well. What's important is that the company is growing its vessel fleet and can sustain or even improve its revenue stream due to buoyant market conditions. Gross and net margins have to be assessed in their FY 2007 results release to ensure they remain competitive.

Global Voice - Deploys PrivaNex for AIXIT

Global Voice today announced another contract (a 5-year one this time) to deploy a dully redundant private fibre network for Aixit. Readers can download the full announcement from http://www.globalvoice.com to read the details, including the technical details of the deployment.

I must admit I am becoming increasingly uncomfortable about GV's business model and ability to generate good cash flows and increased earnings. This comes after Mediaring (the first profitable VoIP company) announced a half-year operating loss due to intense competition and eroding gross profit margins. Although GV is in a different business altogether and they are operating different types of assets, nevertheless, they are in the same industry (IT-related) and it worries me that Mediaring, being a market leader, has also succumbed to competitive forces. Recall from my previous post on Porter's 5-Forces that in the IT industry, threat of substitutes is very high as users are now switching to Skype (which is free) instead of using paid VoIP.

GV needs to demonstrate that it can retain and capitalize on its "Private Fibre Networks" as a unique competitive advantage and value proposition which is difficult to replicate, substitute or replace. The risks are definitely there, as mentioned by several well-informed forum members, that another new technology may replace GV's offering in time to come. If this happens, the worst case scenario will be a total erosion of business for GV as their customers (or potential customers) switch over to the new technology. I remain hopeful that GV can maintain its competitive edge, but will watch the industry for danger signs.

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