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

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

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.