Ezra and Starhub – The CNY “Red Bomb” February 8, 2017

After getting myself fat with all the Chinese New Year Goodies over the long weekend, I turned my attention back to the local market. February is traditionally a period with more movements in the market due to the release of Financial Year report for many companies.

Red bomb 1: Starhub – The ailing dividend machine

Starhub had been paying out a consistent 20 cents yearly dividend since 2010, making it one of the favorite dividend blue chip stocks for local investors. However, on 3rd February after market hours, Starhub released its 4Q16 and FY16 results – along with a guidance to pay out a dividend of 16 cents for FY17.

This reduction of dividend guidance is the first time in more than 6 years, and represents a 20% drop from the previous FY.

For close observers of Starhub, this reduction of dividend will not have come as a surprise, with obvious signals like negative cash flow for the 3rd quarter and declining revenue from heavy subsidies on handsets and adjustment of price package in anticipation of the entry of the 4th telco.

Ezra and Starhub – The CNY “Red Bomb”

Source: Extracted from Starhub FY16 annual report. Starhub ended the year on positive cash balance due an issuance of $300m medium term notes earlier this year.

Nonetheless, the share price of Starhub still took a heavy hit on 6th February, the first trading day after the results were announced. The share closed at $2.80, down 6.66%. Investors can watch out for a potential support level of around $2.75-$2.78. An entry at the stated support level may yield an annual return of about 6%.

Ezra and Starhub – The CNY “Red Bomb”

Source: 10 year daily chart for Starhub from POEMS Mercury

Red bomb 2: Ezra – The fallen star

Ezra and Starhub – The CNY “Red Bomb”

Source: Daily chart for Ezra from POEMS Mercury

At the height of its glory in 2007, Ezra was trading at the price of $3.66. Fast-forward 10 years to 6th February 2017, Ezra share price closed at $0.028. At the price of $0.028, the peak of $3.66 is approximately 130 times away.

Almost right after Chinese New Year Holidays, on 1st February, Ezra requested for a trading halt; a minute before the market opened.

The reasons for the halt came two days later and can be broken down into two major parts:

Firstly, Ezra announced a potential impairment of US$170 million for its interests in the Emas Chiyoda Subsea (ECS) joint venture. To understand the magnitude of this potential write-down, Ezra’s net current liabilities stand at around US$887 million. The impairment represents an amount equivalent to 19% of the current liabilities.

Secondly, Ezra acknowledged that it has occasionally received letters of demand and reservation-of-rights letters from counterparties, including a statutory demand issued by one of its lenders. This piece of news further fueled the doubts of investors over Ezra’s ability to maintain its solvency.

Unsurprisingly, Ezra’s share price gapped down on 6th February to close at $0.028, about 41% drop from the previous trading session.

At the moment, Ezra’s future will hang strongly on its ability to convince creditors to support its ride through this liquidity crisis.

Ezra and Starhub – The CNY “Red Bomb”

Source: 1 year daily chart for Ezra from POEMS Mercury

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About the author

Chong Kai Xiang (Kai)
POEMS Dealer
Raffles City Dealing Team

Chong Kai Xiang (Kai) is an Equities Dealer in the Raffles City Dealing Team, and currently provides dealing services to over 35,000 trading accounts.

Kai frequently conducts seminars to enrich his clients' trading and financial knowledge. Apart from this, Kai also provides weekly market updates to his clients to keep them informed and up to date on their stock holdings.

Kai holds a Bachelor Degree of Finance from the SIM University – UniSIM and was awarded the CFA Singapore Gold Award and CFP® Certification Achievement Award in 2015.

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