Tuesday, January 22, 2008

Ezra - 1Q FY 2008 Financial Review and Analysis (Part 2)

Dear readers, I shall continue with Part 2 of my review and analysis. Please do note, however, that all opinions regarding valuation are subjective; while my write-up on future prospects and strategies are based on objective verifiable evidence in either the company's Annual Report, or through discussions with Management during the recent AGM as well as through IR contacts using email.

Cash Flow Statement Analysis

Cash flows from operating activities dipped to S$12.3 million for Nov 2007 as compared to Nov 2006's S$16.2 million. This is even though the net profit from core operations increased by 270% to S$16.6 million, up from only S$6.15 million a year back. The main attributable causes are because of the increase in inventories which come with increased vessels, thereby reducing cash by S$9.3 million. This was balanced off by an increased receivable from an associated company of S$13.1 million (net). Trade payables had also decreased for the 3 months ended Nov 30, 2007, resulting in a cash outflow of S$6.2 million as compared to a year ago when there was a cash inflow of S$5.9 million from an increase in trade payables. This is an area of note as it could mean that creditors are reducing their payment terms to Ezra; or it could simply be that Ezra is paying off creditors faster due to higher availability of cash resources. Interest paid also increased about 2.4 times from S$1.4 million to S$3.3 million as a result of more bank loans being taken up to finance their fleet expansion. Interest income corresponding rose as a result of them placing more of their cash in short-term deposits, while taxes paid rose because of taxes incurred in other jurisdictions which are not exempted under Section 13A of the Singapore Income Tax Act.

Cash flows from investing activities recorded a net cash inflow of S$106.8 million, and this was mainly due to the proceeds from the disposal of interest in EOC of S$200.1 million. Purchase of fixed assets took up a significant chunk of cash at S$87.9 million, and the Group also spent S$4 million investing in a joint venture company.

Financing activities saw the purchase and sale of treasury shares, which, when net off, did not give rise to much cash inflow or outflow. There was significant repayment of bills payable while loans taken from banks dropped to S$8.2 million from S$28.2 million a year ago, as it reflects Ezra's cash rich position.

Overall, there was an increase of S$118.2 million in cash and bank balances, mainly boosted by the proceeds from the listing of EOC Limited on Oslo Bors. I will be watching Ezra's cash flow from operating activities in 2Q FY 2008 (1H FY 2008) to see if it continues to be healthy.

Future Prospects and Outlook

For Ezra, they are still on an expansion mode though the scale of it is not as grand as when they were first listed in 2003 and when they won their first maiden FPSO contract in Oct 2006. Below are a list of growth catalysts for Ezra Group in the near-term:-

1) Delivery of FPSO in July 2008 - This will dramatically increase earnings going forward into FY 2009 for the Group, but it will be recognized as a 48.9% stake through EOC Limited as this asset will be held by EOC directly.

2) Development of new yard at Vung Tau - This is currently a greenfield and we can expect updates from Management on the progress of the development of this future shipyard for Ezra's ship-building, maintenance and ship repair services. This new yard is expected to reduce reliance on third-party ship repairers and hence enhance net margins.

3) Completion of Saigon Shipyard and Fabrication Contracts - Saigon Shipyard is due for completion in FY 2008 and will be fully operational by the end of the financial year. This means that it will have the capacity to take on more fabrication projects in order to boost earnings, and this is a separate growth driver for the Group.

4) Aberdeen Office - The setting up of this office is positive as it allows Ezra to seek opportunities in other markets like Africa, North America and Middle East.

5) Staff Incentive Scheme - Details of this are expected to emerge in the coming months, and Ezra needs to retain its talent pool and attract new talent in order to significantly bolster their staff strength in anticipation for their expanded fleet. Such specialized vessels require intensive training and skilled labour and S$19.1 million was set aside for this purpose of recruiting and retaining talent. Although this will increase staff costs in the long-term, it is a necessary evil due to the severe shortage of skilled personnel for the O&G industry. Ezra also have plans to set up a training school in HCMC, Vietnam in order to train the new personnel.

With the above catalysts, there is much to look forward to for the company in the next 2-3 years. I will be providing more updates whenever the company releases any news, and I will be doing an EOC review of 1Q FY 2008 results probably next week or so.

Additional Purchase of First Ship Lease Trust

Today, I increased my stake in FSL Trust at an attractive price of S$1.06 per share, as this implies a dividend yield of about 13.3% based on exchange rate of 1.44 per USD, and assuming there is no increase in the current DPU of 2.42 US cents per unit. My average cost is now S$1.133 and I will be holding this with a long-term focus to achieve good yield.

I will be writing a short review on FSL Trust in the coming days in order to assess the trust's latest results and prospects moving forward.


Anonymous said...


have about 30k cash to play around for 2 months. would i be able to get dvds from FSLT by then ?

or any u suggest ?

i buy at own risk.

musicwhiz said...

Hi Anonymous,

For 2 months, no you cannot as their next dividend declaration date will be some time in April 2008. It is only Jan 2008 now and 2months would mean only up till March 2008.

By the way, I am unsure what you mean by "30k of cash to play around with for 2 months". Why the short time horizon ? It makes it all the more risky if you limit yourself to a time period of only two months, as markets can stay volatile and unpredictable for at least a year or 2 after such a credit crunch crisis.

What I am suggesting is to lengthen your time horizon so as to reduce your risks of losses; at the same time also purchase good companies at a reasonable margin of safety.

Regards, Musicwhiz

Anonymous said...


2 months is the time before i pay up to the Housing board. Instead of placing with bank ,earning paltry <1% interest, I am considering parking elsewhere.

if you know of any instruments, please let me know and i will conduct own research as well.


musicwhiz said...

Hi Anonymous,

Sure, no problem.

Regards, Musicwhiz

Derek said...

Hi Musicwhiz,

I have to say you have quite a nice looking portfolio, though the timespan is short.(Time has yet to prove your success)

Being a avid follower of Benjamin Graham investment philosophy,
I am looking for people like us.

I would like to arrange a meeting with you personally.

Feel free to visit my blog investmentmasterycircle.blogspot.com

I look forward to your reply.


musicwhiz said...

Hello Derek,

Thanks, my portfolio is a decent one but I am sure other value investors out there have much better portfolios. I recall Cosco being $1 pre-split and Raffles Eduction being sub-50 cents years back and any intelligent investor would have pounced on it and be sitting on massive gains by now. It is this kind of investing which I strive to achieve in 4-5 years time, so hopefully as you say, time can prove my success. :)

I am actually more of a mixture of Ben Graham, Warren Buffett and Phil Fisher. I have visited your blog and read your invitation to form a value investing circle to share knowledge.

However, I must politely and respectfully decline. For me, I would prefer to remain anonymous for now and my privacy is also important to me, so I hope you can appreciate that. I guess you can say I am "camera-shy" haha. I am sure there are also other wonderful bloggers who are value investors who may be interested in a meetup, so perhaps you can approach them as well.

Many thanks and regards,

Derek said...

Sure no problem.

I wish you all the best in your investment portfolio.

I believe with the help of the internet, we can exchange ideas and give opinions on relevant stocks and bonds.

It is a waste as i always wanted to meet people of high regards to Value Investing and the right discipline.

From your blog, i can derive that you are a really modest person which captured my attention. I believe this is a very essential element of Value Investing.

Nonetheless, it is nice speaking with you, and i hope to keep in touch with you.

Do you have a MSN?

Warmest Regards,

musicwhiz said...

Hi Derek,

Perhaps we can decide to correspond some time in the future, if I feel more comfortable in meeting other like-minded people. Certainly it would be a pleasure meeting other value investors as they are pretty hard to find.