O&M Sector – The Sunken, Sinking & Floating March 21, 2017
O&M Sector
What a weekend it has been again for the O&M sector. Barely a month went by without news on the sector’s spiraling doom or potential recovery. This time round two companies from the sector come into focus.
Ezra – The Sunken
The signs have been there for a while but the last nail in the coffin came on Sunday when the Board of Ezra announced that they have commenced the filing for Chapter 11 protection under the US Bankruptcy Code.
Just a few points on what it means for Ezra if Chapter 11 is approved:
i) The company can continue to operate under the supervision of United States Bankruptcy Court while paying off its debt, meaning Ezra does not have to fold their business immediately and liquidate all assets to pay off creditors
ii) The automatic stay will halt actions by creditors, with certain exceptions, to collect debts from the debtor, this means that Ezra can continue their business relatively free from the harassment of creditors
iii) The freedom to restructure secured debts, meaning Ezra’s repayment can be lower and over a longer period of time
Common equities or common shares are considered the lowest priority in the event of a company’s liquidation.
*For detailed and complete information on Chapter 11 or debt hierarchy, please seek professional advice from the relevant authorities.
The shares of Ezra has been on trading halt since 15th March and has been suspended with immediate effect today.
Nam Cheong – The Sinking
After market closed on 17th March, Malaysian offshore shipbuilder Nam Cheong released an announcement on SGX that its independent auditors, BDO LLP have included an emphasis of matter with respect to the material uncertainty related to ongoing concern in their report on the financial statement of the Group for FY16.
The above paragraph simply means that the auditor is having doubt on Nam Cheong’s ability to continue its business in view of its unstable finances, poor earnings and upcoming repayments requirements.
For the financial year end 31st December 2016, Nam Cheong incurred a net loss of approximately RM 42.7m and has current loans amounting to RM 948.7m of which RM 278.6m are due for repayment in August 2017. The Group’s cash and cash equivalents of RM 162.6m as of end 2016 is likely to be insufficient to cover this.
Not surprisingly, Nam Cheong’s share price opened at 0.04 on 20th March and closed at 0.034, down 30%. The share price movement of Nam Cheong shows an eerie similarity with the movement of Ezra’s share price before it was suspended.
Daily Share price of Ezra, for the last 5 years, obtained from POEMS Mercury
Daily Share price of Nam Cheong, for the last 5 years, obtained from POEMS Mercury
The Floating
Investors who are keen to be vested in the O&M sector to sit out this down cycle are advised to look at counters that have stronger fundamentals in terms of debt servicing capabilities and balance sheets. Some examples of the counters are Keppel Corp and Sembcorp Marine. However, investors also need to be aware that any positive effect on oil prices will take at least 1-2 years to show on the bottom lines of these companies.
Daily Share price of Keppel Corp, for the last 5 years, obtained from POEMS Mercury
Daily Share price of Sembcorp, for the last 5 years, obtained 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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