Venue: Carlton Hotel
Date & time: July 22, 10 am.
AUDITORS FROM the American Petroleum Institute, the main technical certification authority, will be descending in a matter of days’ time on MTQ Corporation’s new US$20 million facility in Bahrain.
The state-of-the-art facility, which is 100% owned by MTQ, provides engineering, repair and refurbishment services to oilfield equipment used in oil drilling operations.
“We see no reason we can’t get through the audit. Hopefully, by the beginning of August, we will be able to go full force to get the operations up,” said Mr Kuah Kok Kim, the executive chairman of MTQ, in his opening remarks to shareholders at the AGM yesterday.
On the ‘transition of executive powers’, Mr Kuah said the CEO appointed about a year ago, Kuah Boon Wee, has got a grip of the operational details of the business very quickly.
He also has responded to drastically higher service quality expectations of the industry in the wake of the Gulf of Mexico oil rig incident.
“He has managed to cope with this demand very well, and changed our management focus in line with the market demand. He has also initiated a few investments which we are confident will enhance our profitability in the long run.”
The senior Kuah added that, as stated in MTQ’s FY10 annual report, he intends to get the Bahrain project up and running and then relinquish his executive involvement with MTQ.
With those opening remarks, he opened the floor to a Q&A session, some highlights of which are as follows:
Mano Sabnani (shareholder): On hindsight, would it have been better if you had set up base in another place in the Middle East such as UAE, which seems politically more stable?
KK Kuah: Nobody, until the end of last year, anticipated what has taken place politically in the Middle East. We have surveyed the region for a few years, weighed the pros and cons, and there is no question that Bahrain came up tops. In UAE, we would be subject to quite different nationalistic policies.
Bahrain, on the other hand, is at the doorstep to the world’s largest oilfield. Our services would be required. A good thing is, we don’t have a local partner. As you know, when you go overseas, you would like a local partner who is influential and well connected. Some of these people may not stay connected – we don’t face such a situation in Bahrain. As I have said many times, the key is how well we offer our services to the oil and gas industry.
Mano: Your recent acquisition of Premier is relatively large – USD19 m vs MTQ's market cap. What are your plans to grow this business and integrate into the oilfield division?
Kuah Boon Wee: Premier has a rental business, we have a rental business, and that gives us the opportunity to offer more products to our customers. Machine capability – they have a shop that does similar work as us but focusing on smaller components. We will tap synergies between what they do and what we do.
They also have sales by representing OEMs from the US and North America – these are positive things for us. The outlook for new equipment is promising --lots of rigs have been ordered and would need to be fitted with equipment, which gives us opportunities to grow.
It is a considerable acquisition but we have good cashflow and we can afford it.
KK Kuah: I would add that Premier is an established concern and has a good reputation. We don’t have to worry about skeletons.
Mano: Why would the vendor want to sell a good company?
Kuah Boon Wee: The owner was a North American company focused on shale gas development. Premier didn’t fit in that strategy. Premier’s HQ is here in Singapore and its operations are all here and the coverage is Asia.
Mano: Regarding MTQ's capital structure, what are your plans? Will you do a rights issue or something?
Kuah Boon Wee: We will look at the overall scheme of things. First thing is, we will put some gearing on Premier. In addition, we have highlighted before we have treasury shares... we have plenty of options to reduce the gearing to a manageable level.
Mano: Is Premier going to be earnings accretive?
Kuah Boon Wee: We have announced that Premier made US$4.1 million in profit in the last financial year – you can take the cue from there.
Ng Kwong Chong (shareholder): For the Bahrain project, how much cash losses are anticipated before cash breakeven is achieved?
KK Kuah: We have managed our startup process in line with the delay we have experienced. We have all along anticipated the project won’t be profitable right away. There would be a period for us to build up our business. The losses we have incurred are still within our original budget. It will be a reasonable period before we break even.
Ng Kwong Chong: The recent acquisition of Premier is, to me, a bit aggressive. If you see something nice next, will you buy by borrowing more money?
KK Kuah: All these years we have been careful and prudent – but always on the lookout for investments. We have always managed our capital conservatively. Some people say we have been too conservative. We will not stop looking for new investments – as a listed company it is our interest and minority shareholders’ interest to see how we can grow the company.
Ng Kwong Chong: With the latest acquisition, the company is in debt. Would this affect the company’s dividend payouts?
KK Kuah: We don’t see any such possibility at this moment. We have no reason to believe we would need to make any adjustment in this area.
MTQ's press release on its acquisition of Premier Sea & Land can be accessed here.
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