MTQ Corporation

UOBKayhian on 5 June 2012


Investment Highlights
· We met with CEO Mr Khaw Boon Wee recently and toured the yard in Pandan Loop.
· MTQ Corporation (MTQ) specialises in the repair and reconditioning of oilfield equipment for drilling and exploration of oil & gas. It has OEM-authorised repair facilities for Cooper Cameron, Varco BJ and QVM Valves. The company has over 30 years of experience in oilfield engineering, servicing customers in Asia, Middle East and the US.
· MTQ also supplies turbochargers and diesel fuel injection in Australia, distributing brands such as Bosch, IHI, Garrett, Denso and Schwitzer.

Company’s Outlook
· Management remains cautiously optimistic on the company’s outlook with adequate orders for the quarter.
· With crude oil prices slumping 15% in May, this will not dampen oil exploration activities in the region due to strong demand, especially in India and China.
· Operations in the Bahrain facility remain robust with increased refurbishment and reactivation works in the Middle East. The company expects to break even at end-FY13 or early-FY14.
· For FY12, MTQ’s revenue grew 40% yoy to S$128.4m with net profit excluding write-back of tax provisions increasing 5.6% to S$11.2m, mainly due to the contributions from newly-acquired Premier Group. Premier provides oilfield equipment primarily used in drilling applications in Southeast Asia.
· MTQ bought Premier for its complementary offerings and the vast business network in the region.

Financials Highlights
· Revenue contribution from the Oilfield Engineering division jumped 75.7% yoy to S$74.1m, driven by the 9-month contribution from Premier. Revenue from the Engine Systems division rose 10.2% yoy to S$54.6m.
· However, gross profit increased only 25% yoy to S$47.0m with gross margin falling from 40.9% for FY11 to 36.6% for FY12 due to the high start-up costs from the new operations in Bahrain.
· The group is also facing higher labour costs due to additional foreign workers and hence, accommodation expenses.
· MTQ declared a final dividend of 2 cents/share, giving an annualised dividend yield of about 5%.
Valuation
· The stock is trading at 7.0x FY11 PE.