Finding Undervalued Singapore Stock: Ocean Sky - update

Ocean Sky was first featured on this blog 6 months back as an undervalued stock (refer to article). Apparently, I am not the only one who thinks that Ocean Sky is undervalued, Ezion (a hot stock considered by many local investor) announced that they are proposing to inject its marine supply base asset into Ocean Sky at cost via a share swap. Post exercise, Ezion will hold 45.15% in Ocean Sky while the latter will have a 2% stake in Ezion. This is a strategic move to enable Ezion to tap into the growth potential of the marine supply base business in Australia without stretching its balance sheet and resources further, while allowing the company to stay focused on its core liftboat and service rigs business.

Ezion will issue 20.2m new shares @ S$2.351 per share in exchange for 440m new shares in Ocean Sky @
S$0.108 per share. In addition, Ezion will have the right to subscribe for an additional 165m shares @ S$0.108, which would raise its stake in Ocean Sky to c.50%.

Upon conclusion of the deal, the existing Chief Operating Officer (COO) of Ezion – Captain Larry Glenn Johnson - will join Ocean Sky as Chief Executive Officer (CEO) to spearhead the marine supply
base business.

Read more details of the deal by downloading report here

Singapore Stocks Investing Strategy: DBS Vickers

This is a report issued by DBS Vickers on 26th August when the market sell down due to anticipation of QE tapering (now that we know that there is no QE tapering, we probably can expect a rebound in the STI)
In this report, they had recommended the following stocks:

1. Technology stocks are early recovery plays – CSE and Venture have significant exposure to US/Europe and offer attractive yields of 4.7% and 6.7% respectively. CSE’s proposed listing of its UK subsidiary could lead to a dividend bonanza on successful listing.
2. Selected industrials – Ezion and Goodpack will leverage on their niche positions in the global arena.
3. Stocks with earnings visibility supported by yield such as SingPost, Comfort Delgro,.ST Engineering and Hutchison Port

Click here to access the report

Other articles on SG stocks investing strategy
Hunting for Value In Singapore Stocks
SG Stock Investing Strategy: UOB Kay Hian
Invest Like Benjamin Graham in Singapore Stocks

Invest like Benjamin Graham in Singapore stocks

Benjamin Graham is the father of  investing and his way of value investing was to search for net-net stocks where he will construct a basket of stocks as his portfolio. His method of value investing is still being widely practiced by value investors such as Seth Klarman, Third Avenue Management etc. In this blog post, I would like to refer to an article by CLSA to explore the idea of investing in Graham-like stocks in the Singapore stock market.

This is a reprint of an article from brokerage research house, CLSA. In this article, they construct a stock screen that incorporates the attributes that Ben Graham looks for in a undervalued stock and run the stock screen through all the SGX stocks to find stocks that fulfill it. The end result of this stock screen is the Ben Graham Number.

What is the Ben Graham Number?
Graham Number is a concept based on Ben Graham's conservative valuation of companies. Graham Number is calculated as follows:

Graham Number = SquareRoot of (22.5 * Tangible Book Value per Share * Earnings per Share)
= SquareRoot of (22.5 * Net Income * Total Equity) / Total Shares Outstanding

Which Singapore stocks passes the Ben Graham Screener?
The following list of stocks passes:
F&N
City Dev
Keppel Land
Ezion
Parkinson Retail Asia
Keppel
Genting
Capitaland
Singapore Airlines
ST Eng
Semb Marine
Golden Agri
YangZiJiang
SATS
Singapore Post

CLSA article below:

Ezion Holdings - Valued entry into growth story

Ezion Holdings is a pure marine & offshore provider. It is involved in the provision of offshore marine logistics & support services and the development, ownership and chartering of strategic offshore assets such as Multi-Purpose Self-Propelled Jack-Up Rigs ("Liftboats"). It is the owner of the largest and most sophisticated class of Lifeboats in the world and one of the first to introduce the usage of Liftboats in Asia & Middle East.

Ezion Holdings's value is in their first mover advantage to own the world’s largest liftboats. This is due to its five-year exclusive building contract with US-based Levingston Inc. (expiring in 2013). Ezion’s liftboats are versatile offshore construction vessels that do equipment lifting for a wide variety of works at offshore oil fields and wind farms. Beside this, Ezion secured a contract to supply marine logistics vessels to US energy company Chevron for the first phase developmental work of Gorgon gas fields. The company is expected to bid for other sub-contract work related to the US$43bn Gorgon Project.

The financials also provide evidence of a growing company. For the year 2009 ended December 31, Ezion grew its revenue by 136.9% and its gross profit by 105.8%. At its current price of SGD $0.73, it is trading at a P/E ratio of 13.4. This is low as compared to P/E ratio of 53.66 and 23.19 in Year 2008 and 2009.

I favour Ezion based on the following:
1. business transformation via the high margin liftboats, at an estimated 4.2 years payback periods
2. ability to self-fund this liftboat business expansion using debt and internal cash flows
3. Experienced and strong management to establish Ezion to be global dominant liftboat company and capitalise in the opportunities that are present in the offshore oil and gas industry as well as the offshore wind farm development market

Ezion is expected to grow 50% in the next 5 years and based on the growth rate, the intrinsic value is $0.95 which represent a 32% margin of safety