[/caption]
Part 2 of my analysis focuses more on the Group’s prospects, plans and strategies and how these can sustain the business in the years to come. My investing style is such that analysis of numbers and ratios only forms one part of a holistic review of the business, as I believe numbers alone do not tell the whole story about a Company and thus cannot solely be relied upon for margin of safety with respect to a potential investment. Rather, a company is the sum of its quantitative and qualitative aspects, hence one should analyze these aspects to the best of his ability in order to come up with a reasonable conclusion as to the merits and demerits of an investment.
Fleet Expansion Plans and Updates
Total current fleet capacity for Ezra is 246,600 bhp (brake-horsepower). The aim is for the Group to reach a total bhp of 318,600 by FY 2010, representing an increase of 29.2%. The good news is that in Part 1, I mentioned that the capex requirements for 2 MFSV from Karmsund have been eased. Thus, this would indicate better gearing and hopefully more healthy cash inflows in future periods. 2 MFSV and 2 liftboats are scheduled to enter Ezra’s fleet by FY 2010, and for FY 2011, there is one more planned MFSV (this should refer to the Keppel Singmarine MSFV which is currently under review). No formal announcement has yet been made on Ezra’s part about the proposed cancellation of this MFSV, though it was reported by Keppel Corp that Lewek Shipping (a subsidiary of Ezra) was negotiating the cancellation of the contract, forfeiting the deposit paid.
The capex requirement for the vessels is US$275 million, which should be obtained from the drawdown of more bank lines and bills payable. From prior announcements, Ezra has already obtained the necessary funding and can draw down on these credit lines when required. Ezra’s relationship with their bankers remain healthy as their vessels are pegged to long-term charters, thus cash flow visibility is strong; giving the banks no incentive to “pull the rug” from under them. With Lewek Arunothai set to begin gas production in 3Q 2009, this should also reduce EOC’s high gearing.
Another US$75 million has been earmarked for their Vietnam Yard expansion and Energy Services Department. I suspect this is for their new yard in Vung Tau whereby the land has already been obtained but for which construction has yet to commence. Their current yard in Ho Chi Minh (District 2) had already clinched 3 contracts with a total orderbook of US$214 million, of which 68% (about US$145.5 million) is still outstanding and should be spread out between FY 2009 and FY 2010. With a gross margin of 20%, this should translate into gross profit of US$29 million spread out over the two years. The Group is also focusing on improving their suite of products for Energy Services and to integrate this into their offering so as to improve margins and snare larger customer contracts. Currently, Energy Services division is the up and coming new division of Ezra but the gross margins are noticeably poorer at 13% compared to 40% for Offshore and 20% for Marine.
Territorial Expansion Plans and Oil Demand
Ezra currently is targeting territories such as South America, Africa, North Sea and China as potential areas of expansion even amid this severe crisis and recession. Though the Energy Agency has forecast the lowest energy demand in 5 years as a result of the global downturn, oil majors remain committed to pump in capex for oil and gas E&P activities as an under-investment may mean trouble once the economy recovers and demand surges. I am a believer that oil prices will continue to trend upwards once the recession eases due to the lack of significant capex being ploughed into E&P, as a few major projects have been derailed due to lack of financing. According to the presentation slides, oil majors such as Petrobras are going to invest in E&P until 2013, while Africa holds the majority of global deepwater O&G reserves. These have yet to be tapped and represent good potential areas where Ezra can offer their services as their fleet is tipped to be 83% deepwater-capable. I view this as a potential strong earnings contributor in future as shallow water reserves dry up and oil majors need to drill deeper in order to extract. Also, I do not believe oil is going to run out within 50 years, thus the Group can still continue to do well in the medium-term due to this consistent demand. Read more...
Read about Ezra – 1H FY 2009 Analysis and Review Part 1 here[caption id="attachment_1447" align="alignright" width="210" caption="Photo by rednuht"][/caption]
Part 2 of my analysis focuses more on the Group’s prospects, plans and strategies and how these can sustain the business in the years to come. My investing style is such that analysis of numbers and ratios only forms one part of a holistic review of the business, as I believe numbers alone do not tell the whole story about a Company and thus cannot solely be relied upon for margin of safety with respect to a potential investment. Rather, a company is the sum of its quantitative and qualitative aspects, hence one should analyze these aspects to the best of his ability in order to come up with a reasonable conclusion as to the merits and demerits of an investment.
Fleet Expansion Plans and Updates
Total current fleet capacity for Ezra is 246,600 bhp (brake-horsepower). The aim is for the Group to reach a total bhp of 318,600 by FY 2010, representing an increase of 29.2%. The good news is that in Part 1, I mentioned that the capex requirements for 2 MFSV from Karmsund have been eased. Thus, this would indicate better gearing and hopefully more healthy cash inflows in future periods. 2 MFSV and 2 liftboats are scheduled to enter Ezra’s fleet by FY 2010, and for FY 2011, there is one more planned MFSV (this should refer to the Keppel Singmarine MSFV which is currently under review). No formal announcement has yet been made on Ezra’s part about the proposed cancellation of this MFSV, though it was reported by Keppel Corp that Lewek Shipping (a subsidiary of Ezra) was negotiating the cancellation of the contract, forfeiting the deposit paid.
The capex requirement for the vessels is US$275 million, which should be obtained from the drawdown of more bank lines and bills payable. From prior announcements, Ezra has already obtained the necessary funding and can draw down on these credit lines when required. Ezra’s relationship with their bankers remain healthy as their vessels are pegged to long-term charters, thus cash flow visibility is strong; giving the banks no incentive to “pull the rug” from under them. With Lewek Arunothai set to begin gas production in 3Q 2009, this should also reduce EOC’s high gearing.
Another US$75 million has been earmarked for their Vietnam Yard expansion and Energy Services Department. I suspect this is for their new yard in Vung Tau whereby the land has already been obtained but for which construction has yet to commence. Their current yard in Ho Chi Minh (District 2) had already clinched 3 contracts with a total orderbook of US$214 million, of which 68% (about US$145.5 million) is still outstanding and should be spread out between FY 2009 and FY 2010. With a gross margin of 20%, this should translate into gross profit of US$29 million spread out over the two years. The Group is also focusing on improving their suite of products for Energy Services and to integrate this into their offering so as to improve margins and snare larger customer contracts. Currently, Energy Services division is the up and coming new division of Ezra but the gross margins are noticeably poorer at 13% compared to 40% for Offshore and 20% for Marine.
Territorial Expansion Plans and Oil Demand
Ezra currently is targeting territories such as South America, Africa, North Sea and China as potential areas of expansion even amid this severe crisis and recession. Though the Energy Agency has forecast the lowest energy demand in 5 years as a result of the global downturn, oil majors remain committed to pump in capex for oil and gas E&P activities as an under-investment may mean trouble once the economy recovers and demand surges. I am a believer that oil prices will continue to trend upwards once the recession eases due to the lack of significant capex being ploughed into E&P, as a few major projects have been derailed due to lack of financing. According to the presentation slides, oil majors such as Petrobras are going to invest in E&P until 2013, while Africa holds the majority of global deepwater O&G reserves. These have yet to be tapped and represent good potential areas where Ezra can offer their services as their fleet is tipped to be 83% deepwater-capable. I view this as a potential strong earnings contributor in future as shallow water reserves dry up and oil majors need to drill deeper in order to extract. Also, I do not believe oil is going to run out within 50 years, thus the Group can still continue to do well in the medium-term due to this consistent demand. Read more...
Read about Ezra – 1H FY 2009 Analysis and Review Part 1 here
[/caption]
Part 2 of my analysis focuses more on the Group’s prospects, plans and strategies and how these can sustain the business in the years to come. My investing style is such that analysis of numbers and ratios only forms one part of a holistic review of the business, as I believe numbers alone do not tell the whole story about a Company and thus cannot solely be relied upon for margin of safety with respect to a potential investment. Rather, a company is the sum of its quantitative and qualitative aspects, hence one should analyze these aspects to the best of his ability in order to come up with a reasonable conclusion as to the merits and demerits of an investment.
Fleet Expansion Plans and Updates
Total current fleet capacity for Ezra is 246,600 bhp (brake-horsepower). The aim is for the Group to reach a total bhp of 318,600 by FY 2010, representing an increase of 29.2%. The good news is that in Part 1, I mentioned that the capex requirements for 2 MFSV from Karmsund have been eased. Thus, this would indicate better gearing and hopefully more healthy cash inflows in future periods. 2 MFSV and 2 liftboats are scheduled to enter Ezra’s fleet by FY 2010, and for FY 2011, there is one more planned MFSV (this should refer to the Keppel Singmarine MSFV which is currently under review). No formal announcement has yet been made on Ezra’s part about the proposed cancellation of this MFSV, though it was reported by Keppel Corp that Lewek Shipping (a subsidiary of Ezra) was negotiating the cancellation of the contract, forfeiting the deposit paid.
The capex requirement for the vessels is US$275 million, which should be obtained from the drawdown of more bank lines and bills payable. From prior announcements, Ezra has already obtained the necessary funding and can draw down on these credit lines when required. Ezra’s relationship with their bankers remain healthy as their vessels are pegged to long-term charters, thus cash flow visibility is strong; giving the banks no incentive to “pull the rug” from under them. With Lewek Arunothai set to begin gas production in 3Q 2009, this should also reduce EOC’s high gearing.
Another US$75 million has been earmarked for their Vietnam Yard expansion and Energy Services Department. I suspect this is for their new yard in Vung Tau whereby the land has already been obtained but for which construction has yet to commence. Their current yard in Ho Chi Minh (District 2) had already clinched 3 contracts with a total orderbook of US$214 million, of which 68% (about US$145.5 million) is still outstanding and should be spread out between FY 2009 and FY 2010. With a gross margin of 20%, this should translate into gross profit of US$29 million spread out over the two years. The Group is also focusing on improving their suite of products for Energy Services and to integrate this into their offering so as to improve margins and snare larger customer contracts. Currently, Energy Services division is the up and coming new division of Ezra but the gross margins are noticeably poorer at 13% compared to 40% for Offshore and 20% for Marine.
Territorial Expansion Plans and Oil Demand
Ezra currently is targeting territories such as South America, Africa, North Sea and China as potential areas of expansion even amid this severe crisis and recession. Though the Energy Agency has forecast the lowest energy demand in 5 years as a result of the global downturn, oil majors remain committed to pump in capex for oil and gas E&P activities as an under-investment may mean trouble once the economy recovers and demand surges. I am a believer that oil prices will continue to trend upwards once the recession eases due to the lack of significant capex being ploughed into E&P, as a few major projects have been derailed due to lack of financing. According to the presentation slides, oil majors such as Petrobras are going to invest in E&P until 2013, while Africa holds the majority of global deepwater O&G reserves. These have yet to be tapped and represent good potential areas where Ezra can offer their services as their fleet is tipped to be 83% deepwater-capable. I view this as a potential strong earnings contributor in future as shallow water reserves dry up and oil majors need to drill deeper in order to extract. Also, I do not believe oil is going to run out within 50 years, thus the Group can still continue to do well in the medium-term due to this consistent demand. Read more...
Read about Ezra – 1H FY 2009 Analysis and Review Part 1 here
