An IPO hit by wrong timing

by **Cals** Tue 22 Mar 2016, 01:33

An IPO hit by wrong timing

By Kathy Fong / The Edge Financial Daily | March 21, 2016 : 10:17 AM MYT

This article first appeared in The Edge Financial Daily, on March 21, 2016.

KUALA LUMPUR: EA Technique (M) Bhd (EA Tech), in many investors’ minds, is probably the oil and gas (O&G) stock that plunged 25% below its initial public offer (IPO) price of 65 sen on its maiden trading day on Dec 11, 2014.

Having seen the sharp fall in the company’s share price, the hearts of most employees of EA Tech just sank. “The staff morale was so low at that time. Many of them had taken up loans to subscribe to the IPO,” its managing director Datuk Abdul Hak Md Amin recalled.

In fact, the company’s board wanted to postpone the listing exercise considering the dampened sentiment on the O&G stocks. Most O&G counters, regardless of size, were bogged down badly.

But Abdul Hak insisted on going ahead with the listing plan.

“I said no. We should proceed [with the listing exercise] because I know the company’s fundamentals are strong ... I know that our earnings are intact, although oil prices were tumbling,” said Abdul Hak, the second-largest shareholder holding a 18% stake, after Kulim (M) Bhd.

“I explained to the banks about the staff’s loans ... telling the bank officers our staff would have bonuses and their salaries won’t be affected by the fall in crude oil prices,” he said.

“Many friends called to ask about the share price as if the company was going into deep trouble ... I actually told them to buy; it was below 50 sen! Murahnya harga (the price is so cheap),” said the founder.

Now, EA Tech’s employees should have a broad grin. The company’s earnings jumped multiple times in the financial year ended Dec 31, 2015, and its share price is trading at 70% above its IPO price. It closed at RM1.11 last Friday, and it once hit a high of RM1.48 in August last year.

Abdul Hak was that confident in EA Tech’s earnings prospects when many were struggling to stay above water mainly due to the company’s policy on milestone payments to ensure prompt payments by vendors. “We always insist (on) milestone payments as the projects proceed to protect ourselves,” said Abdul Hak, adding that this would reduce the risk of defaults.

Despite a big slash on new investments by oil majors, EA Tech has not faced any contract terminations or delays. “All our contracts have exit clauses ... vendors cannot terminate contracts just because of a change in economic climate,” he said.

In fact, the company is expanding its fleet size currently, while many vessels are docked waiting for charter. It expects an addition of about five vessels to its fleet of 38 as at end-2015.

“It is now the best time to expand our fleet because many distressed assets are up for sale. With cheaper asset purchase prices, we could be more competitive when bidding for contracts as we could offer better rates since our costs are lower,” said Abdul Hak.