MTQ Corporation

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Well, hindsight is always crystal clear, as they say.

Perhaps we should take a step back and ask a few questions:-

1) Was the sharp plunge in the oil price predictable? From my point of view, I'd say no, even in hindsight I would not have expected it. Hence, I do not blame myself for not foreseeing it. For such events, you have to buffer yourself against them by having a requisite margin of safety.

2) Does MTQ still generate FCF? Ultimately, what a Company is worth is the sum total of its FCF from now till eternity. The important question should be whether the Company can continue to generate FCF even with the oil price being so depressed. There are two main aspects to this:-

a) Their expansion to the middle east (Bahrain) should be doing OK as the cost of producing oil is very low there, so there should not be much effect on O&G activities in that part of the world. The slowdown would, however, affect their Singapore oilfield operations and also their customers from USA who send their equipment over to be repaired/maintained.

b) Does MTQ have high capex requirements? The last I checked, apart from money being spent on acquisitions of Binder and Premier Land and Sea (as well as Neptune), the business actually didn't require a huge amount of cash. They are not doing upstream E&P and they are also not building pipelines or using pipelay barges or OSV to service oil clients. So we can expect capex to remain low.

If we put these two factors together, it is reasonable to assume the Company can continue to generate a decent (albeit lower) level of FCF.

3) Was the recent profit guidance a significant cause of worry? Note that the writedowns were for goodwill impairment and that March 31 is MTQ's year-end, thus there will be the mandatory test for impairment which is conducted yearly. This is an accounting entry which writes down the value of the goodwill (SGD 29.8m as at Dec 31 2014). The debit goes to expense under exceptional items while the credit goes to goodwill under non-current assets. One must question if there is any cash-flow impact - in this case I believe the answer is no. However, the thing to be wary of is the reason for the write-downs. Since Engine Systems and Binder are under pressure, it is not unreasonable to expect a write-down. The question is whether their core business of oilfield engineering is still chugging along fine.

From the above, it can be observed that a confluence of negative events and pervasive pessimism has set in, and that the pendulum has indeed swung from one extreme to the other; where there used to be extreme optimism that only good times would be seen (and a certain analyst proclaimed that MTQ could be worth as much as $3.20, but that he was giving a "discount" so that it would be worth "only" $2.40).

I leave it to forumers to decide on the implications and ramifications of what I have mentioned.

Thanks and Regards.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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Simply put, MTQ's current situation for the group's oil & gas related businesses is likely a temporary fall in business volume and probably also margin compression due to the recent sharp fall in oil price leading to a temporary slow-down in demand partly driven by knee-jerk reaction by customers. But I doubt very much that MTQ now suffers from serious idle fixed assets - which will lead to a significant fall in FCF, asset write-down, and debt servicing problems - like those companies engaged in owning/renting out specialised vessels and equipment for the deep-sea oil & gas sector.
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(02-04-2015, 07:56 PM)CY09 Wrote: If you had bought MTQ in 2 April 2010 at 78 cents, the current worth of your shares is $1.14 (after adjusting for the 2 rounds of bonus) and ignoring the extra dividends from your bonus share, you would have collected 20 cents of dividends. MTQ's CAGR is 11.4% for the past 5 years even taking into the account the recent share price rout, while the STI Index has not even delivered 8%. Even the star performers in the STI index like DBS delivered less than 11% CAGR!

<top 10 watchlist but not vested>

Wow, they issued bonus shares? Darn, should've kept it "forever". Sad sold off in 2009.

(02-04-2015, 08:44 PM)lilvestor Wrote: Don't get me wrong, I wasn't complaining about the 5yr CAGR of MTQ, my point was that I should have sold this when the market grossly overvalued this stock, but I obviously didn't because I was planning to hold on to this "forever". Hence the view that long term investing seems pointless to me, God knows when I will be able to sell this for that kind of returns again, probably never I think.

Btw 11% CAGR is excellent for a blue chip like DBS, most people have large cap blue chips in their portfolio for stability/dividends, not growth.

Well to be honest, it is still a fairly valued stock, and management - although they are highly paid - was able to steer the company through the 2009 GFC. They have also demonstrated that they take care of shareholders with the bonus share issue, and dividends payout along the years.

With a small market cap, this sort of volatile price movement is numb to me - after all, I started out by punting on small caps until I started to wise up (thankfully, small trades back then, phew!). Perhaps you should be looking at larger market cap stocks? Long-term investing paid off for me (10 years in the market!), while risking a very tiny amount of my portfolio in value and speculative stocks.

(Vested)
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i say this based on gut feel, since chairman Quah already nibbled a bite at $1.30, let's take 65 cts as the maximum MOS to his nibble price! Big Grin

Wat say u?! Big GrinTongue
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
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(03-04-2015, 12:55 AM)Musicwhiz Wrote: One must question if there is any cash-flow impact - in this case I believe the answer is no. However, the thing to be wary of is the reason for the write-downs. Since Engine Systems and Binder are under pressure, it is not unreasonable to expect a write-down. The question is whether their core business of oilfield engineering is still chugging along fine.

From the above, it can be observed that a confluence of negative events and pervasive pessimism has set in, and that the pendulum has indeed swung from one extreme to the other

We are barely 6 months into the oil price crash... Tough times in the O&G industry will likely go on for awhile yet! With the oil price in its current state, projects are delayed, budgets are being cut and overheads being reduced. Everyone down the line will be under pressure and MTQ being one of the smaller subcontractors will definitely feel the pressure sooner or later.

Generally O&G majors are delaying spending (to pressure) and asking for price reductions regardless of upstream/downstream. As a result, many subcontractors are already reducing headcount (Subsea 7, Saipem, DeepOcean etc.), while luckier ones with backlog (i.e Technip) can hold up for awhile longer. Some smaller players (Ceona) are even winding up offices... And the general feeling is that this is just the beginning. Where will that put MTQ? I'd say the situation is good for cashed up players for acquisitions but considering MTQ's size and scale, the most likely/best outcome will be merely surviving this ordeal.

Quah bought at $1.30 before the crash Wink go figure if 65c is an appropriate discount after the drastic change in macro environment. Personally I'll wait for more profit guidance, obvious signs of cost cutting/productivity improvements before considering.
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FY15 (ended 31Mar15) AR just out and makes interesting reading...
http://infopub.sgx.com/FileOpen/MTQ_AR_2...eID=357939

While the fallen/depressed oil price will weigh on MTQ's Oilfield Engineering and Subsea Services businesses in both revenues and margins in the foreseeable future, but just based on the company's exemplary track record in business growth both organically and through selective acquisitions, there is enough reason to believe that MTQ under the present father-and-son management team will survive the current downturn and even prosper in the longer term. We have in MTQ a good operator as well as a CEO who knows how to acquire related businesses properly and carefully.

I look forward to the coming $0.02/share final dividend, with XD date fixed on 5Aug15 and payment on 21Aug15.
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Now that the price is languishing at around 74 cents, would you say that the MOS from $1.30 that Quah bought in at, has all but evaporated? Undoubtedly, MTQ is a strong player in this business, but what I'm surprised is that despite the oil price rising back to around USD $60 per barrel, the damage on industry players' bottom line is so devastating. One investor in another forum is waiting for this counter to go down to 60 cents before going in. Any views from forummers? (vested)
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Can a new investor or existing shareholder easily buy a reasonable amount of MTQ shares - let's say 250 lots - at the current price level? Quite clearly, the answer is either "No", or "unlikely".
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(01-07-2015, 11:38 AM)dydx Wrote: Can a new investor or existing shareholder easily buy a reasonable amount of MTQ shares - let's say 250 lots - at the current price level? Quite clearly, the answer is either "No", or "unlikely".

Just after you wrote this, someone just put 200 lots on sale at 74c in the afternoon.
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so good! Big Grin

let me wish for a seller to put 200 lots on sale at 65cts! Big Grin
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
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