Posted by: donmihaihai | January 18, 2009


One of the ways to profit handsomely in stock investing is to coattail someone, another smart investor or businessman by buying the same stock that he/she is buying. As buying increase, price of the stock will likely to be pushed up and an offering may be in the not too distant future. If he wants it desperately, a premium to the market price will come with the offer. If all these happen within a short period of time, return can be good.

The general offer for UIC by UOL must be the talk of the town as it is well-known that banker/property Wee Cho Yaw want to control all his prized assets and has a reputation for not overpaying. With John Gokongwei, another major shareholder in UIC, I guess many are trying to coattail them by buying either UIC or Singapore Land. I have another idea. Let says I know there is an outstanding businessman/investor with a reputation for paying low price, I would rather to be with him then against him. Which mean I will be looking at UOL rather than UIC or in the case of Wee Cho Yaw, I would have to look into UOL, UIC, Singapore Land, Haw par, Hotel Plaza, etc to see which will be his main vehicle. With that, I can coattail him not just for the current assets he is looking at but all future assets.

It is even better if the main vehicle is selling at a cheap valuation. Let say company A is in hotel business and the company is build by buying/building hotel in cheap and manage it well. Company B is in office property business, just like Company A, it good at paying less for more and has been slowly accumulating Company A stock through the market only when it is cheap. Then there is Company C who buy lot of stocks from the open market, which include Company B but mostly at cheap price. In this case, it is very hard to value Company C as all value are being hide somewhere in the financial statements but by buying Company C cheap, mean buying Company B and A cheaply as well. And somemore this is also betting on the businessman and if he is reasonable young, then it can go a long way.

This idea is not from me, as I usually don’t have anything original. I fished it out from Snowball, a lousy written biography where the only thing that is interesting is WB. I love to fish out ideas from everywhere and sometime unknowingly. Like it is through book like Collapse that I understand QAF Australia farming is a bad idea so if I want to invest in QAF, the 1st question is where is the pot of lands located and what is the soil and water situation like. Another example is through book like The most important fish in the sea that I have some understanding about fishing so if I am to look into China Fishery, the most important data I will be looking will be record of tonnes taken out of the sea in the area. It doesn’t matter if China Fishery put down how many vessel or license, it is the sustainability of the fish stock matter the most. Over fishing are common and the more advance the method for fishing, the faster the rate of depletion and fish farming is the future.

Still I will be making hell lot of mistakes going forward, just like Jaya, with the oil price following the economy going down, my initial buying price become not so cheap anymore. And for Jaya time is a big factor, the longer this recession drags or low oil prices last, lesser the value of Jaya. But at current price, Jaya worth alot more. Because of the drop in crude oil price, I have been reading and looking more news on OSV also some company that I usually don’t touch or follow closely. One of them is EZRA. I was really uncomfortable reading their latest 1Q2009 result, I usually don’t read their financial statement quarterly. Their financial statements look strange. This is not a forecast but a WARNING. For investor in EZRA, it is time to look line by line, and the changes, especially B/S and cashflow statement. To me it is either 1) lack of knowledge on my side, 2) error or 3) riding a tiger.



  1. Hi Donmihaihai,

    Actually, was hoping you could elaborate more on why you were uncomfortable with Ezra’s 1Q 2009 results ? I had a close look at the BS and Cash Flows and there were some items which caught my attention as well.

    I note your constant mention of Jaya and its merits and would also like to engage you on why you think Jaya is an attractive company to be invested in (since I am aware you are a shareholder). Similarly, if we could exchange pointers on Ezra I would be most happy.

    Thanks in advance,

  2. Hi Musicwhiz,

    Jaya? Nothing special just that it is one of the 1st to ride the current cycle, playing to the max in this up cycle but never expose itself to all kind of potential damage when cycle turned except for the drop in price of vessel. Generate lot of cashflows, paying dividends without asking for capital and of course cheaper.

    What do you see in EZRA? Why not you put it down what you see and let see if we are looking at the same things.

  3. The problem with Company A is that it also holds shares of Company B and Company C.

  4. Hi Cif5000,

    What will you do in this situation when calculating their values? I am thinking to cancel their own shares in proportion to their interests in the company since the earnings “doesn’t flow out”.

  5. I have been thinking about this problem but couldn’t figure out a solution.

    For one thing, if you own shares in all three companies, you can value each company individually (i.e. without adding the ownership of the rest). Then add the 3 values and minus away the rest of the ownerships.


    Company X has 50% of Company Y
    Company Y has 50% of Company X
    You have 10% of Company X and 15% of Company Y
    Suppose Company X is worth $10 without considering the ownership in Company Y.
    Suppose Company Y is worth $20 without considering the ownership in Company X.

    Then we have 40% of X and 35% of Y owned by others. My view is that if you take 100% minus away those owned by others, what remains is yours. So logically, you have $6 of X and $13 of Y =$19.

    This is different from the traditional calculation. Worth of X = 10% x $10 + 10% x 50% x $20 = $5
    Worth of Y = 15% x $20 +20% x 50% x $10 = $4
    Total = $9

    The problem is that you have to be the biggest shareholder of both companies to get that effect of low ownership with high worth. I believe this has huge impact on estate planning.

    Having spent half a day thinking about this, I still do not know how to do an accurate valuation of Company A, B and C.

    You want to put some numbers in for your illustration?

  6. Donmihaihai,

    I’ve been writing on Ezra and analyzing the company for more than a few quarters as I have been a shareholder since 2005, thus of course I am curious on your analysis of the Company. Since you posted on your blog about things which you had observed, I would have expected you to be the first to elaborate on it. I think I have said a lot about Ezra on my own blog already, as it is.

    I thank you in advance,


  7. Hi Cif5000,

    When I was thinking on my illustration, I didn’t put in any numbers. Lets use your.

    “Company X has 50% of Company Y
    Company Y has 50% of Company X
    You have 10% of Company X and 15% of Company Y
    Suppose Company X is worth $10 without considering the ownership in Company Y.
    Suppose Company Y is worth $20 without considering the ownership in Company X.”

    For 40% of X and 35% of Y ==> X = 6, Y = 13. Total = $19.

    In this way, we are taking that all 50% of Y in X and 50% of X in Y belong to me while I only own 10% of X and 15% of Y.

    The traditional way is better.

    My worth of X = 10% x $10 + 10% x 50% x $20 = $2
    My worth of Y = 15% x $20 +15% x 50% x $10 = $3.75
    Total = $5.75

    The total value of X and Y must not more than the sum of $10X + $20Y = $30XY.
    10% of $10X = $1X
    15% of $20Y = $3Y
    Total $4XY. The diff between $5.75 and $4XY should be the cross ownership.

    estate planning? Perhaps so but I think more on control. Paying less for more. Let say having control with less than 30% ownerships in A, B and C but end up controlling A, B and C.

  8. Hi Musicwhiz,

    Lets focus since I was talking about 1Q2009 financial statements and you said u some items caught your attention as well after close look at B/S and cashflow. I thought you might want to put down some numbers…but well I start 1st with some items.

    Item 1
    Fixed Assets
    31 Aug 08 – 182,598K.
    30 Nov 08 – 257,361K
    Diff – 74,263K
    Purchase FA(cashflow statement) – 48,788K
    Interest paid in investing cashflow – 2,221K
    Depreciation – 1,294K
    Unaccounted – 25,048K
    Where this 25,048K come from? Capitalised of interest payments? If so how. Or timing diff? Other payables :
    31 Aug 08 – 83,143K
    30 Nov 08 – 88,445K
    Breakdown on other payables in annual report only.

    Item 2
    31 Aug 08 – 8,087K
    30 Nov 08 – 6,925K
    Unable to explain as no impairment, no disposal of subsidiary. Unless it is an error, if not while goodwill is small, it usually link to some bigger item which mean something bigger may change without us knowing.

    item 3
    Bank loans + bills payables to bank
    31 Aug 08 – 25,753K + 81,861K +52,170K + 35,301K = 195, 060K

    30 Nov 08 – 59,691K +61,970K +66,470K+33,035K = 221,166K
    debt increased by 26,106K.

    financing cashflow put repayment of debt – 10,787K.

    How strange.

    Item 4
    trade receivables
    31 Aug 08 – 87,004K
    30 Nov 08 – 128,920K
    Increased by 41,916K — 48%

    4Q2008 – 119, 214K
    1Q2009 – 113,016K
    Decreased by 6,198K — 5%

    Nothing wrong here if collection is slow but certainly not what being stated in the comments. Anyway an almost 50% increase is no joke unless it is for a quarter or 2 only. While payable increased as well, it may not mean increasing bargining power, it can be being desperate.

    So what you see?

  9. The complex cross-linked ownership can be a double edged sword. Cao Cao of Wei kingdom lost his battle due to the crosslinked battleships which was supposed to ensure stability (just like Wee Cho yaw did to ensure control), but alas once one ship is on fire,the rest will be hurt too. Just look at the japanese companies with their crosslinked ownership.

    In Buffett’s biography, he nearly got into trouble with the SEC with his complicated shareholding structure (the author even draw a map!) .The result: Buffett and Munger decide to simplify things. If the world’s best investor thinks that simplification is the better way,who are we to say otherwise.

  10. Hi Donmihaihai,

    I took a close look at your questions, and my replies are as follow:-

    Item 1 – Cash flows cannot be tied to accounting recognition of FA. Some FA may not be capitalized yet even though payments have been made. Some may also be on finance leases or down-payments but have yet to be recorded as FA. In fact it may sit in the books as deposits before being reversed out as FA.

    Item 2 – According to Note 4a in FY 2008 Annual Report, part of the goodwill (about US$7,422K) making up the US$8,087K was recorded as provisional goodwill due to the acquisition of Telemark (Page 92 of Annual Report). This was recorded based on the identifiable net assets of the Company at the time of acquisition, thus there is a possible of revaluation of goodwill according to the CGU (Cash Generating Unit) identified at a later time. There need not be goodwill impairment in this case to justify the adjustment.

    Item 3 – The cash flow from financing mentions net repayment of bank loans, so I did not include bills payable. By adding up the bank loans, there was a decrease of about US$5.5 million. The remainder could have been paid for but the loan could have been restated using a different exchange rate, thus causing discrepancies. Due to the fact the the loan may be in another currency other than USD, and their cash at bank is also in NOK, inevitably there will be exchange difference which we cannot reconcile just by looking at the cash flow statement. Note that there is even an exchange adjustment of USD 17,414K in the Cash Flow Statement.

    Item 4 – It’s very difficult to compare the trade debtor balance with the revenues for a specific quarter. This is due to the timing of cash inflows from receivables and also recognition of revenues. Suffice to say the increase is of note but not alarming as I had seen this before in other companies like China Fishery where there is a significant time gap between revenue recognition and receipt of cash. I would not bother too much about this if I were you, but I will raise it up at the EGM no doubt.

    As for my observations, they can be summarized as follows (I use bullet points to make it short and sweet):-

    a) Compressed Gross Margins for Offshore Division from 43% to 40% – are charter rates softening and did the Group use third-party charters ?
    b) Marine Services gross margin dropped drastically from 28% to 12% – any rationale ?
    c) More on EOC and why the contracts there are not firmed up yet (check out EOC’s presentation and press release)
    d) The status of the unrealized loss of US$ 19,750K and whether this will remain unrealized, or be realized.
    e) Any more plans for capex ? Now with 3 out of 5 MFSV cancelled, are there plans to draw down more debt or to slowly repay it ?
    f) Energy Services is contributing but gross margin is very low at 13%. Is this the norm or will GP margins be able to rise eventually ?
    g) Why has interest cover dropped so much from 64.8 times to just 6.5 times ?


  11. hi Musicwhiz,

    item 1 – For timing diff on current assets/ current liabilities or capitlised of interest payment, are you able to come out with number close to the diff? Number is required not explanation.

    item2 – acceptable

    item 3 – not acceptable. I took shortcut on my earlier comment. Cashflow for financing put nil for changes in bills payable to bank while B/S bills payable to bank increased by 33,938K from 25,753K to 59,691K. Repayment is for loans side. You want me put all(or most of) exchange adjustment on this single item?

    item 4 – nothing to comment because one can say until sky drop like I will tell you I had seen these before a number of companies which after that follow by round and round of writeoff.

    It is precisely thing like item 4 that make me awake at night if I invest in any company.

    For your a to f, it is more on where the industry and EZRA is heading which I don’t want to comment on. Anyway this industry is slowing down due to sharp drop in crude oil price so must prepare to see the shift reflecting in the numbers.

    g) is the most easy one because interest cover is indeed low. In fact lower if I do my own calculation. 3.3X only.

  12. Hi Cif5000, the Author and cy:

    In dealing with the example given by CIf5000, I have the following comments,

    1) The method suggested by Cif5000, which resulted a net worth of $19, i think this is the ‘Maximum’ worth to the particular shareholder in this case. Further, this can only be achieved if he has controlling influence onn the Board of both companies, by being the largest shareholder with 10% in A and 15% in B alone is not sufficient. In all other cases, the 50% x 50% cross shareholding should not be treated as completely belongs to me.

    2) Donmihaihai suggested that $5.75 is the worth of the shareholdings and the difference between 4XY and $5.75 is the cross shareholdings. I think, however, it fails to take into account the effect of cross holdings and the circular nature of the calculation.

    The traditional way (my calculation).

    X = 10 + 0.5Y
    Y = 20 + 0.5X

    X = 10 + 0.5 (20 + 0.5X)
    X = 26.67
    Y = 33.33

    This can be proved by. let’s say, if an acquirer wants to acquire both companies in full, he has to purchase 50% of A and 50% of B.

    He has to pay:
    50% X 26.67 +50% X 33.33 = $ 30
    ($30 is the total worth of the two companies)

    My worth = 10% (26.67) + 15% (33.33)
    = 2.67 + 5
    = 7.67

    This value is composed of,
    1. Direct holding = 10% x 10 +15% x 20
    = $ 4

    2. The portion of X in Y, and Y in X only considering their respective underlying assets exclude self-shareholding effect
    = 10% x 50% x $20 + 15% x 50% x $10
    = $ 1.75

    Sum 1 and 2, we get Donmihaihai $ 5.75.

    3. Cross-holding effect. $ 1.92.

    Total = 7.67

    Howver, the above is correct in thoery, in the real world i would prefer to use $ 5.75 as a more conservative measure in view of the restrictions on earning transfer.

  13. Hi Sephirothngoi,

    Your suggestion is interesting but it can’t be true.

    The ultimate test is X = 10, Y = 20 and total = 30 without any cross holding. This is what 2 companies (X and Y) worth(let say they are in property business and 30 is the value of their properties).

    Cross holding prevent leakage of that $30(or let one control more of that $30). But it cannot increased it to $60. So end of the day, $30 is still the max.

  14. It doesn’t mean that X + Y =60, but still if the investor wants to control the whole company, the calculation has proved that he has to pay $30. Because of the cross shareholding effect, we should not look the two companies as separate one.

    Don’t you notice that your method is just an “uncomplete” version of mine? The cross holding create a circular loop, your calculation did the first degree of holding of X in Y and Y in X, but not continue any further. (X in Y in X, and so on…)

    Please refer to this book,

  15. Let me ask everyone here a question, if you dont have shareholding in Y, but you own 50% of X (which is the other half).
    How much is your 50% holding worth?

    Answer = 50% x 26.67 = 13.33

  16. We are talking about 2 things here.
    1. Valuation of shares as a minority shareholder and controlling shareholder.
    2. The amount of shares needed for control.

    If you are holding 10% of X and 15% of Y and no one else holds a larger stake than you do, you control both companies. This control, however, is shaky because if someone quietly exceed your shareholdings, you lose. The definitive line to cross is 25% in each company, but as long as no one has more shares than you, you control.

    Scenario play.

    If someone tries to buy into X and/or Y to overtake you as the biggest shareholder, what can you do?

    1. Sell X from Y
    2. Sell Y from X
    3. Buy X
    4. Buy X using Y
    5. Buy Y
    6. Buy Y using X
    7. Buyback X
    8. Buyback Y
    9. Sell X and buy Y
    10. Sell Y and buy X
    11. A combination of moves

    Valuation of shares is different for minority shareholders and controlling shareholders. The reason is that the controlling shareholders can vote on behalf of and hence “own” the cross-ownership. For minority shareholders, no valuation advantage, unless value is unlocked – by selling away the cross ownerships. You can bet on reaction of the controlling shareholder.

  17. Hi cif5000,

    Agree with you. It is shaky but if If I want to control X and Y with no cross shareholding and controlling shareholders, one way is to buy both X and Y until I get control let say 20% of X and 20% of Y. Get elected to the board and managing both X and Y. Then I am able to use X cash to buy Y, Y cash to buy X while at the same time still buying X and Y. From here onward, I can
    1) use X to take over Y. The holding of X shares will be canceled when take over completed. My control in X increased and X control Y.
    2) do the same thing in Y
    3) Take over X by myself. The holding of Y will increased as X holding of Y become my holding.
    4) Do the same thing in Y.

  18. hi sephirothngoi

    I believe my method is incomplete but I can’t accept your calculation.

    And this
    X = 10 + 0.5 (20 + 0.5X)
    X = 26.67
    Y = 33.33

    For X = 26.67, it cannot happen when 100% x = 10 and 100% y = 20. In this equation x = 150%. Let say I own 100% x = 10, then Y cannot own 50% x, which is 5.

    If I own 50% x, x own 50% y and y own 50% x then,

    5(50% x) + 0.5 (20 + 0.5X) = 17.5

    Am I right?

  19. Donmihaihai,

    Unless I was running the Company, it would be impossible to reconcile all aspects of their Capex just by looking at Balance Sheet and Cash Flow Statement. One should be aware that detailed Notes To Accounts are required for a full reconciliation, and even then you would need additional footnotes in case of any further explanations required ! I think as investors, we should form our opinions based on reasonable public information; if the intention is to dig as though one were running the company, then one might as well run the company than be a shareholder ! You may have your opinions on this, but I stand strongly on this one.

    As for the bank loans issue, I have emailed IR and they will reconcile for me. Thanks for pointing out.

    For interest cover, note that this is based on PBT/Interest Expense. PBT is affected by unrealized exchange losses for 1Q 2009 thus the low coverage of 6.5 you see. For 1Q 2008 it was artifically inflated due to the exceptional item (sale of EOC). Strip everything out and it should be about 20x.

    For trade receivables, they are mainly (80%) oil majors who I believe have no trouble paying up, so why the fuss over whether Ezra will face more debtors write-offs in future ? One should look at quality of customers not just the amounts outstanding !


  20. Hi Musicwhiz,

    I understand the restriction on getting the exact amount for FA. But it is not difficult to get a good understanding of where that 25million goes. Because there are only a few places it can be accounted for. 1) pre-paid before 1Q, 2) paid in 1Q, 3) paid after 1Q, 4) interests capitalised, 5)finance lease or maybe other that I don’t know. For 1) to 5), it can be dig out just by looking at B/S and cashflow statement(not exact amount) as 25 million is not a small. I end it here.

    “if the intention is to dig as though one were running the company, then one might as well run the company than be a shareholder ! You may have your opinions on this, but I stand strongly on this one”

    Sure. But when item is not right, like debt issue but the account balance, it is TIME TO DIG. Anyway, maybe it is just me. So I end it here.

    For receivables, I speak in general on all companies. In general, increasing receivables days and provision/write off of doubtful debts is a red flag. I end it here too.

    Interest cover.
    PBT(12,390k) + interest expenses(2,243k)/ interest expenses(2,243k) = 6.5X
    This is the number given by the management.
    12,390k + 2,243k +unrealised forex loss(19,750k) – realised forex gain(8,014)/ 2,243k = 11.8x
    I get 11.8x. It is nowhere near 20X. It need another(about) 15,000k more to get 20x.

    This is how I do it.
    12,390k+2,243k/2,243k+(interest payment capitalised in 1Q) 2,221K = 3.3X

    Note: Regardless the accounting treatment for interest payment as expenses or capitalised as asset, it is still interest payment.

    And I have not add forex changes because it won’t inprove the situation much better than 6.5x and I look at interest cover in another way(note : me only) — cashflow/interest payment. because only cashflow can pay interest not reported profit in P&L.

    In EZRA case, I don’t bother because I don’t view EZRA as a strictly going concern. Please take a look at my earlier post regarding EZRA B/S leverage, associate leverage and JV leverage and the amount(133million &22.3million) of guarantee EZRA got into, add in interest cover and cashflow. Without associate and JV, EZRA already has a hard time looking after it own debt but if EOC fail and trigger that 133million, it will pull EZRA down. So strike 1 — EOC, strike 2 — JV, strike 3, EZRA. There is no other way out other than raising of capital if that trigger happened and in the event if it really happen, there is no time for all this.

    So going forward, there is a fair chance that EZRA is not a going concern.

    I think I talk too much on EZRA and I don’t want to continue unless my numbers ARE WRONG. Thank you.

  21. Donmihaihai,

    While I do appreciate the discourse, I fail to see how you managed to come to the stunning conclusion that “there is a fair chance that EZRA is not a going concern”. Your 3 “strikes” are not too logical from my perspective because you assume EOC would somehow collapse under the weight of its own gearing, without accounting for the long-term charters which had already been signed (for 3 years or more) with oil majors, thus ensuring vital cash inflows from operating activities. With steady cash flows and no more further capex (except perhaps the additional FPSO for which Ezra are bidding for), I fail to see how EOC is doomed to fail. Of course, you can have your own opinions but they should be supported by fact and not conjecture.

    As for your point on Strike 2 JV, I assume you refer to the JV between KS Energy and Ezra (i.e. Casadilla) to charter jack-up rigs. Though Liftboat Titan 1 sank in high seas, this in no way indicates that his JV will collapse as you stated, and as far as I know the JV is still doing fine, and will be contributing more to Energy Services division as stated by the Company in time. Unless you purport to study the financials of the JV (which we are not privvy to have), I doubt you can claim that they are in financial difficulties.

    And Strike 3 depends on 1 and 2 right ? So no need to state my case as to the financial viability of Ezra Group itself once 1 and 2 have no bearing. With the removal of further capex requirements as a result of the cancellation of 3 MFSV orders, the Group will lower its capex requirement significantly. As almost all of its current fleet are under LT charters, I fail to see how they could be in significant trouble unless they have a very serious cash flow mismanagement problem.

    While I don’t mind you analyzing the numbers for Ezra, I think your comments are rather uncalled for if they are not substantiated by concrete evidence. Would you safely conclude that the group is not a going concern after what I’ve typed ? If so, then perhaps other listed companies also may face the same nagging problems in their cash management.

    *Note: For interest coverage, you have your own method which is fine. My point is that since one cannot reliably predict future operational cash inflows, we can only look at such ratios on hindsight. And as I’ve said, since there will be no further major capex requirements, interest cover should remain fairly constant.

    If you would care to, perhaps you can mention the merits of Jaya Holdings. I will spend some time looking at its financials so that we can have a discussion.

  22. musicwhiz,

    Number speaks and I end it with mostly numbers.

    NPAT exculding gain from sale of vessel and subsidiary.
    FY2006 – 19,218K
    FY2007 – 28,844k
    FY2008 – USD38,404K
    1Q2009 – USD9,561K

    Cashflow from operating activities
    FY2006 – 20,021K
    FY2007 – 33,558K
    FY2008 – USD17,422K
    1Q2009 – USD11,563K

    FY2006 – 2.1X
    FY2007 – 2.3X
    FY2008 – 1.9X
    1Q2009 – 2X
    Leverage is calculated without operating leases. When included, leverage increase, example for FY2008(which I calculated earlier), leverage become 2.4 – 2.5X

    Associated companies total assets(TA), total liabilities(TL) and PAT.
    FY2006 – TA – 222,298K, TL – 173,564K, PAT – 3,947K.
    Leverage – 4.6X. ROE – 8.1%, ROA – 1.8%

    FY2007 – TA – 89,236K, TL – 58,784K. PAT – 4,753K.
    Leverage – 2.9X, ROE – 15.6%, ROA – 5.3%

    FY2008(USD) – TA – 531,457K, TL – 394,887K, PAT – 30,111K
    Leverage – 3.9X, ROE – 22%, ROA – 5.6%

    Leverage was high. Looking at FY2008, of the total assets, only 25.7% is funded by equity. That explain ROE of 22% and ROA of 5.6%.

    While not strictly relevent, jurong tech and Ferrochina leverage were 2.5X and 4X respectively. Computed with last available financial statements.

    FY2006 – TA – 35,443k, TL – 30,412K, PAT – 2,391k.
    Leverage – 7X. ROE – 47.5%, ROA – 6.7%

    FY2007 – TA – 32,904K, TL – 25,612K. PAT – 115K.
    Leverage – 2.9X, ROE – 1.6%, ROA – 0.03%

    FY2008(USD) – TA – 42,242K, TL – 37,638K, PAT – 934K
    Leverage – 9.2X, ROE – 20%, ROA – 2.2%

    In JV case, it was even worse. It go into extreme.

    FY2006 – Associated – 49,954K.
    – JV – 19,176K

    FY2007 – Associated – 42,195K.
    – JV – 32,751K

    FY2008(USD) – Associated – 132,920K.
    – JV – 22,339K

    EZRA leverage is high but its associated and JV are extremely high at 3.9X and 9.2X respectively. The amount guarantee by EZRA is HIGH considering PAT, cashflow, own debt, ownership, contribution from associated and JV. Can its associated and JV fail? Yes possible, much much higher than EZRA. If it really happen, EZRA must fulfill its commitments to the banks and how much debts can EZRA take on not forgetting it own operating lease?

    To me, the numbers say so that EZRA can be strike by it guarantees on extremely weak associated and JV. I don’t know what is the % so I say there is a fair chance.

    There is nothing special as the business of OSV is not something to be excited about which include Jaya. The only excitment over the past 9 years or so was demand>supply.

    What make me like Jaya?
    1st is price.

    Jaya PAT in FY2000 – 10.3million
    Jaya PAT in FY2008 – 149.7million
    Total PAT from FY2000 – FY2008 – 596.8million

    Jaya NA in FY2000 – 138.4million
    Jaya NA in FY2008 – 438.6million

    Dividend paid in FY2000 – 7.3million
    Dividend paid in FY2008 – 92.5million
    Total dividend paid from FY2000 to FY2008 – 325.1million

    Jaya achieved that without raising capital(excluding exercising of share options) and reasonable low level of debts.

    Again, this is what the number tells me.

  23. Hmm, apparently you are an extremely numerical person judging from the amount of numbers you posted in your comment. I don’t disagree that numbers tell a story, but for me I tend to focus more on other aspects of a Company (such as Management integrity, quality of customers and barriers to entry etc.) instead of relying strictly on just numbers.

    Perhaps your methods are more geared towards Graham while mine are more slanted towards Fisher and Buffett. Though I do number-crunch, I must say you are way better than me at sorting through tons of numbers and I certainly salute you for that.

    Ezra’s gearing is high, no doubt, but as I mentioned, they have good interest coverage, operating cash inflows and a strong customer base coupled with long-term charters. Their recent ability to secure a S$500M term loan with UOB also attests to their financial strength as well as their prospects, as banks would not easily grant a line of credit while the financial crisis was ongoing. I depend on such cues to determine if a company can handle a certain level of debt, and from my 3 years as a shareholder, I have observed that Management is prudent with managing cash and ensures it has its backside covered. Your counter argument could be that Management will feed you anything and the numbers tell everything, so all I can say is if there should ever be any misrepresentation then it’s entirely my fault for overlooking it.

    As I reiterated, I know of EOC’s high gearing but the long-term charters secured for the FPSO and other heavy vessels will ensure a steady cash inflow (these are oil majors so low chance of default). When banks see that there is CERTAINTY of cash flows, they will not be so quick to pull the plug as it does not benefit them to serve statutory demands like in Jurong Tech’s case. How much do you possibly think they can recover by resorting to this drastic action ?? I think banks would be extremely unlikely to do such things unless there was a very high likelihood of a client defaulting, and for Ezra and EOC’s case I see that possibility as “remote”.

    So just to make things clear, I am NOT saying that the numbers you quoted are incorrect or inaccurate, but the facts I have laid down speak for themselves. These are qualitative factors which banks will review as well, and not just focusing on purely the numbers as well. If that were the case, banks would not lend to any company hoping to expand ! It is also not correct to say they are likely to pull the plug because Ezra has also had a healthy relationship with banks and they have good visibility in terms of revenues and cash flows.

    As for Jaya, what I do not understand is why they have decided to sell their vessels instead of committing them to long-term charters ? BY selling yes of course they can raise cash but this would be a one-off thing as there is no recurring cash inflows in future periods (no lock-in of charters and lesser vessels to charter out). Also, why sell now when prices of vessels are weakening due to the collapse in the shipping market ? Won’t they be better off selling in a bull market instead ?

    I also understand (from a quick glance thru the financials) that Jaya has taken up significant debt to fund their new vessel expansion program. Considering that their current vessels are old and need to be scrapped, how soon can they get their new vessels delivered to them and ready for charter ? These are qualitative aspects of the business which I am asking about and go past just the numbers alone.

    What you have stated for revenue, PAT and dividend growth is indeed impressive. But remember this is all in the PAST. Past performance does NOT dictate future performance, so I must ask for your view on the future prospects of Jaya, instead of mentioning their past glories.

    Thanks in advance.

  24. Hi donmihaihai,

    I’m not gonna ask such in-depth questions as i’m a rookie. Instead, i wish to learn your experience pertaining to SGX journey.

    If possible, could you contact me at


  25. Hi musicwhiz,

    Graham or not, I put those numbers down because I know they are powerful, especially so for anyone who able to read and understand it. Nothing “not too logical” about it even if I take back my words on strike 1, 2 and 3.

    That was also my polite way of asking you to stop your comments on EZRA here, especially on what you think because you can’t convince me. In fact, I am not ashame to say, I keep skipping those longer comments on what you think of EZRA after reading earlier posts. Nothing new, just keep going round and round.

    I put up those number for Jaya for the exact reason to end it because I don’t think it will go anywhere with you.

    But I thinks you put up some good questions on Jaya on your last comment. Next time only if with effort that come because of interests.

    I am looking for “time well spent” rather than winning an argument or debate.

  26. Dear Donmihaihai,

    After going through your blog, I must say that I have a lot of respect for your numerical analysis and your consistent realized gains, which I believe have been going on since 2001. You are definitely a more experienced investor than myself and I am sure you have been through a lot more than me. Hence, I take your comments seriously. Please understand that even though we have differing views on Ezra and Jaya, you will always have my respect as your analysis is top-notch.

    Bottom-line is, I am very new as a value investor (barely 2 years) and hence am very sure that I will make mistakes. The aim is to learn from them and improve, not to win arguments. Ultimately, if Ezra goes down as a Company, I will be losing everything I had invested; thus it’s my convictions which will help me to protect my capital. I am prepared to be wrong for all my investments; though of course the experience will be less than pleasant.

    As for Jaya, the idea is NOT to engage in a long debate; I note the business model is very different from Ezra and hence asked some questions which I thought were pertinent. I did not mean to cause any offense and if I did, I am sorry.

    You have a Happy CNY and a good year ahead. I hope to be able to engage you in future on pertinent issues which will ensure your time is more well-spent.


  27. Hi donmihaihai,

    I dont quite understand your calculation, you said,
    “If I own 50% x, x own 50% y and y own 50% x then,

    5(50% x) + 0.5 (20 + 0.5X) = 17.5

    Am I right?”

    I dont think it is right.
    Based on your assumtion:
    Direct – 50% in X = 50%x 10 = 5
    X in Y = 50% x 50% x 20 = 5
    Y in X In Y = 50%^3 x 10 = 1.25
    …Y in X = 50%^4 x 20 = 1.25
    …X in Y = 50%^5 x 10 = 0.3125
    …Y in X = 50%^6 x 20 = 0.3125
    …X in Y = 50%^7 x 10 = 0.0781
    … etc etc

    Sum up everthing, we get the value of my 50% holding in X alone = 13.33
    (which is 50% x 26.67)

  28. Dear musicwhiz and donmihaihai,

    That is really an impressive discussion, i am not going to be the judge, as i think time will prove it. Dont get fed up, Happy CNY.

    Graham or Buffett.. Numbers with integrity speaks louder than qualitative reasoning. As an inexperienced value investor, it is much easier to focus on number rather than to guess the reliability of our own judgement on the qualitative aspects of a business. From experience and learning, we will better equip ourselves in forming opinion on qualitative aspects of a business.

    I wish to end the discussion on X, Y, Z there. I think we better discuss Haw Par as it is more useful.


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