MTQ

DMG & Partners Research on 7 May 2013

MTQ reported a set of blockbuster FY2013 results with Patmi (profit after tax and minority interests) coming in 12 per cent ahead of estimates. The key to the stellar result was its new subsidiary, Neptune Marine Services (NMS), which swung back to profitability. We raise our FY2014/FY2015 estimates by 20 per cent/23 per cent. Rolling over to FY2014 forecast valuations, we raise our target price to $2.10 (from $1.66) at the same eight times PE. Maintain "buy" and recommend taking scrip dividends.

Q4 Patmi jumped 94 per cent y-o-y to $7.7 million, and FY2013 was up 48 per cent to $21.6 million. With a vessel campaign ongoing, Neptune Marine Services (NMS) swung back into strong profitability delivering a $4.1 million Patmi in Q4 2013, well ahead of $1.5 million expectations. We now incorporate higher (but still very conservative) estimates from NMS to the tune of about $7 million a year.

The Bahrain plant will reach breakeven this year. Last year, revenue from Bahrain jumped to $4.8 million from $1.1 million a year ago.

We estimate cash breakeven at $6 million and accounting breakeven at $7.5 million, which are within reach in the current year. This will contribute to organic growth in both Singapore and Bahrain as drilling activity remains strong.

We raise estimates by 20 per cent/23 per cent for FY2014 and FY2015. We played it extremely conservative last year given the uncertainty over the new NMS segment. With a vessel campaign ongoing now, we expect a bumper first quarter, and on top of stronger oilfield engineering operations, we raise FY2014/FY2015 estimates to $26 million/$30 million from $21.9 million/$24.4 million.

Effective full-year dividend is raised to 4.5 cents. MTQ also announced a bonus share issue, and the "same" two cents final dividend applies to the bonus shares. We strongly recommend taking scrip in lieu of cash as the shares are undervalued. Previous takers of scrip have enjoyed a 60 per cent gain on their new shares which were issued at a 10 per cent discount to market price.

BUY