MTQ Corp

DMG & Partners Research, Jan 17

MTQ will be acquiring 100 per cent of Binder Group, a private Australian company providing pipe support and pipe suspension solutions to the oil and gas sector, for A$19.3 million (S$21.7 million) cash.

We estimate the forward purchase PE at around four times. Following the purchase, we raise FY2014/15 estimates by 3/10 per cent, with our target price accordingly rising to S$2.67, based on a 10 times blended FY2014/15 PE.

Binder is a private Australian company specialising in custom-built pipe support and pipe suspension solutions utilised in liquefied natural gas pipeline related works.

It has a 50 per cent stake in an Indonesian manufacturing facility. Its book value is A$6.2 million while profits for the full year ended June 2013 stood at A$1.9 million.

The group already recorded A$1.8 million of profits in the four months ended October 2013.

MTQ will pay A$19.3 million in the all-cash transaction, of which 75 per cent is paid upfront and the remainder over the next two years. The vendor will deposit A$3 million in an escrow account to cover any potential claims on the company arising from transactions entered into before the sale.

The acquisition will allow MTQ to expand its oilfield engineering business to a larger customer base, while the 50 per cent Indonesian stake will give it a foothold in the growing Indonesian market.

We also see shareholder value creation via this attractively priced purchase, with a direct boost to EPS growth in the near term.

We raise our forecasts by 3/10 per cent for FY2014/15. Due to the relatively big jump in FY2015 earnings, we also lift our dividend estimates for the year by 0.5 cent to 6.5 cents, maintaining a 21 per cent payout ratio. MTQ's FY2014/15 PEs are at 6.5 times/4.8 times post-acquisition.

Maintain "buy". We continue to like MTQ's: i) high cash generation, ii) strong earnings growth, iii) low valuations, iv) healthy yields, v) strong industry backdrop, and vi) low gearing. MTQ remains one of our top picks in the oil and gas sector.

BUY