One of the reason for me to look upon E.A Technique (M) Berhad (Eatech - 5259) is due to it's big chunk of claim that is potentially more than RM 200 million which will have significant effect on the financial of the company.
To give insight on why Eatech has such a claim, then I will have to tell you on what had happened then.
Basically, Eatech been awarded with the EPCIC Contract for the FSO facility for Hess Exploration And Production Malaysia B.V on 22nd December 2014. The contract by Hess Exploration and Production Malaysia B.V. , is for the provision of engineering, procurement, construction, installation and commissioning (EPCIC) of a floating storage and offloading facility (FSO) for a Full Field Development Project in the North Malay Basin. The contract value is about USD 191 million and the facility to be delivered at site in 20 months after the letter of award.
However, in the course of the construction, the owner of the FSO wanted to make some modification towards the FSO, which in turn, result in additional cost. If you are a project manager, you will be very familiar to see project getting changes in the middle of the course, which will result in VO (Variation Order).
So what is Variation Order ? Variation Order need to pay or not ?
Let me explain to you what is Variation Order in this simple comic.
So now, do you understand already ? Hahaha... No need to explain further already, right ?
Now, this is exactly what is happening in Eatech. The modification work had incurred a cost of RM157 million, and Eatech is filling up a claim on Variation Order in order to make up for the work done.
As you can see, the proposed settlement on the EPCIC variation is at USD 65 million, which works out to RM 260 million. Not 2.6 million, or 26 million. It is RM 260,000,000.00
If Eatech is able to reach such settlement, that would resemble a potential EPS of 51 cents based on outstanding share of 506 million.
Alright, let's not be too optimistic in such claim since it is a claim. To be more pessimistic, we give a 40% discount on the claim, which is RM 156 million. This figure is the actual cost itself for the modification works done. That alone will contribute 31 cents EPS in the coming quarters.
With crude oil price turning better, the chances of Eatech receiving a better settlement is of course - logical.
Whatever, it is, I had informed you on the potential payment that is going to received by Eatech in the coming future quarter. And this could also be one of the major reason why the director and major shareholder of Eatech had been loading up on Eatech with them holding more than 75% stake.
With Eatech almost sitting at the bottom of the chart now, it is time for you to give a thinker on this company now before it is too late. But you have to remember that this is just a referencing material for you. Whatever investment decision you make is solely your own decision.