Tuesday, January 08, 2008

Ezra and EOC - EOC Annual Report and Declared Dividend for FY 2007

Sorry for the lack of posts, but I had a great time in Bangkok shopping, watching movies with my wife and going for massages; thus was not inclined to think of the stock market for a while ! The new year FY 2008 has just begun and markets are looking more attractive as prices across the board are falling. Investors who intend to make use of this opportunity to invest in solid companies should be careful on which company they choose (it should have a sustainable competitive advantage) and they should buy with a margin of safety to the intrinsic value.

A quick check on EOC's website showed that EOC had posted up a change in financial calender. The 1Q FY 2008 results will now be announced on January 14, 2008 (Monday) instead of the previous January 9, 2008 (Wednesday). This would mean that Ezra will also be releasing its 1Q FY 2008 results on the same day, as both companies would synchronize their reporting dates. The dates for the remaining announcements are still subject to change and EOC will do a filing with Oslo Bors to inform of any changes in proposed schedules for results releases accordingly, as is the rule and regulation for the Norwegian Bourse. For more details, please click here for the list of announcements by EOC (all dated December 27, 2007).

EOC has also released its Annual Report (AR) for FY 2007 which can be downloaded from the link above. Of note are the mention on Page 6 of the delivery of the Lewek FPSO 1 which is on schedule for July 2008, and how this will contribute strongly to earnings for EOC. All costs and equipment have been on budget and on schedule, and according to the AR, she is on schedule for first gas (which I believe relates to maiden voyage ??) by August 2008 (last month of FY 2008). Importantly, the AR mentions that EOC will be acquiring more hardware in FY 2008 to complement their fleet and to enable more operational flexibility and efficiency. Being listed on Oslo Bors means that it is much easier for EOC to do a secondary offering which will dilute Ezra's 48.9% interest, rather than directly diluting Ezra's shareholders. Mr. Tan did mention that the reason for Ezra to divest part of EOC was to remain asset-light, and Mr. Tay emphasized that any debt taken up by EOC remains EOC's debt, and will increase EOC's gearing and will not affect the Group's gearing. It remains to be seen if this will be the case, but it is almost a certainty that EOC's spin-off is to help it raise funds through a separate channel (in this case, Norwegian capital markets) in order to grow and expand. Remember that in Norway, oil and gas assets fetch better values as they are better appreciated there, as compared to Singapore.

The CEO's statement also talks about the successful delivery and deployment of Lewek Champion, which is the new accommodation and pipelay vessel. The AR mentions recruiting new blood in early 2007 to ensure the new sophisticated vessels of Ezra have sufficient skilled manpower to run them. Growth for EOC (and hence Ezra Group) will come through the secure of long-term charter contracts (ensuring a steady recurring revenue stream), higher charter spot rates (in a tight supply market where most vessels are old) and more offshore construction contracts flowing in. I do expect more positive developments from EOC in the coming months of FY 2008.

Finally, EOC has declared a dividend of 2.04 US cents per share, which is its maiden dividend paid after its successful listing on the Oslo Bors. The dividend is payable on January 11, 2008 and this will be reflected in the 2Q FY 2008 financial results for Ezra. Ezra holds 48.9% of EOC or a total of 54,226,462 shares in EOC, therefore they will receive a total dividend of US$1.106 million (or about S$1.592 million using an exchange rate of 1 USD = 1.44 SGD).

I will provide an analysis and update on both EOC and Ezra's 1Q FY 2008 results when they are announced.

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