MTQ Corporation

[Musicwhiz]

MTQ has released their FY 2011 results during lunch break.

Revenue +12% to S$91.7M, Gross profit +11% to S$37.5M and GP margin was 40.9%, down from 41.1% in FY 2010.

Net profit was $10.6M, down 12% due to one-off charges and adverse movements. Without these, net profit would have been up 18%.

A final dividend of 2c/share was declared, to choose either cash or scrip.

Will post more as I read through the announcement(s).

[Musicwhiz]

There is a brief write-up on MTQ's FY 2011 found at NextInsight's website (see link below).

http://nextinsight.net/index.php/story-a...1-mtq-corp-

I will be posting up my own review and analysis after going through the numbers, facts and figures.

[dydx]

MTQ's FY11 (ended 31Mar11) full-year results are pretty solid.....
http://info.sgx.com/webcoranncatth.nsf/V...1000EBD83/$file/MTQ_Full_Year_Results_FY11.pdf?openelement [Results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...1000EBD83/$file/MTQ_FY11_Results_PR_Final.pdf?openelement [Press release]

There are good reasons to support and believe that both the well-established Oilfield Engineering Division and Engine Systems Division are poised to grow further in the foreseeable future and also bring in higher profits.

I now look forward to the $0.02/share Final dividend (with scrip option)...

[Musicwhiz]

Hi dydx,

Any views on MTQ's investment into NMS? I've looked at NMS and it does seem like the previous Management did not know how to run the business well and it ended up with poor results and heavy debts. However, do you think the business can do well moving forward? It seems to be a very high capex business, hence unsure if it can yield dividends like what their investment in Hai Leck is doing.

As of today, MTQ are sitting on an unrealized 28% loss (NMS is now trading at 3.6 AUD cents versus their cost of 5.0 AUD cents).

Thanks in advance!

[dydx]

Any views on MTQ's investment into NMS? I've looked at NMS and it does seem like the previous Management did not know how to run the business well and it ended up with poor results and heavy debts. However, do you think the business can do well moving forward? It seems to be a very high capex business, hence unsure if it can yield dividends like what their investment in Hai Leck is doing.

As of today, MTQ are sitting on an unrealized 28% loss (NMS is now trading at 3.6 AUD cents versus their cost of 5.0 AUD cents).

Thanks in advance!

I think at this point it is still too early to judge how well NMS will turn out as a strategic investment for MTQ, as NMS is still undergoing business restructuring, including disposal of some assets/businesses which will bring in quite a lot of cash. What we know is that MTQ has bought a nice 12% stake in NMS at a good price of AUD0.05/share, even though the share price has fallen below that since.

Based on the track record of the father-and-son Kuahs as business managers and investors, I tend to believe that the NMS investment will turn out alright for MTQ at the end.

[Nick]

I recall reading an announcement for NMS on 20th April about the sale of its Trident vessel at a $7.5 million loss. Perhaps this is why the share price took a beating ?

http://www.upstreamonline.com/live/article253087.ece

[Musicwhiz]

I recall reading an announcement for NMS on 20th April about the sale of its Trident vessel at a $7.5 million loss. Perhaps this is why the share price took a beating ?

Hi Nick,

If I am not wrong, the sale of this vessel was already part of NMS' restructuring plan to divest off non-performing assets and close down non-performing business units. Perhaps the market reacted when the loss was actually crystallized, rather than just discussed on paper. Also, the magnitude of the loss could have been higher than anticipated, resulting in a knee-jerk sustained sell-off. Whatever the case, the only merit of this announcement (from my view) is that they can free up cash to invest in assets and business units which actually make money!

Incidentally, MTQ used to have this problem too back in 2005 when they invested in their ROV fleet (Subsea Robotic Division), and in the end they admitted they made a mistake and cut loss on the venture, crystallizing the loss but recouping the cash. The rest is history as the cash was used to reinvest in their Oilfield Engineering and Engine Systems businesses, both of which are growing steadily and performing well now.

Perhaps KKK and son see the same eventual results for NMS? Such exercises, admittedly, do take time and value may not show itself in the near-term.

Another point to note: MTQ purchased shares in RCR Tomlinson back in 2003 (also a listed company on ASX) and owned 22.9% of it. After 5 years MTQ sold off the investment for a gain of almost 95%, netting an exceptional gain of S$40.8 million. It remains to be seen if they can pull off such a coup again in say 5-6 years time (2015-2016), but dydx did mention that father and son are savvy investors.

[Nick]

Hi MW,

Will MTQ be forced to account for the 28% fair value loss in its 1H 11 statements assuming the price remains unchanged or will it be recorded at cost price ?

I think I will go and read up more about NMS since MTQ is taking a pretty big bet on it. Perhaps, it might even be wiser to invest directly in NMS hahaha !

[Musicwhiz]

Hi MW,

Will MTQ be forced to account for the 28% fair value loss in its 1H 11 statements assuming the price remains unchanged or will it be recorded at cost price ?

I think I will go and read up more about NMS since MTQ is taking a pretty big bet on it. Perhaps, it might even be wiser to invest directly in NMS hahaha !

Hi Nick,

Have edited my previous post FYI to include the RCR Tomlinson deal which I researched on back in 2009 when I purchased shares in MTQ.

Yes they have to account for the mark-to-market loss on NMS as at Balance Sheet date, but it will be an unrealized loss and will be reported under Comprehensive Income. More important is their operating profit from their 2 core divisions.

Yep good idea to read up on NMS, but I doubt I will want to directly invest in it. Let me take up the "risks" through MTQ haha!

[Musicwhiz]

Dear all, Part 1 of my analysis of MTQ's FY 2011 Financials is now up on my blog. Please feel free to visit and leave comments, thanks!

A snippet as follows:-

"It would be interesting to find out the interest rate at which MTQ had borrowed the money at, now that interest rates are hovering near all-time lows. It is known from previous announcements that the loan was disbursed by UOB but the tenure of the loan was not stated. The idea of leverage is to borrow money at low interest rates in order to generate ROE and ROA at much higher rates through business expansion, and MTQ has to ensure that the increase in finance costs does not over-shadow the increase in revenues and associated profits from their business expansion into Bahrain."