@ MTQ 's AGM: Shareholders engaged the management on topics such as the upside to its new Bahrain operations, and the pros and cons of a scrip dividend scheme. Photos by Nicole Ng



Venue: Carlton Hotel

Time & date: 10 am, July 27

SHARES OF MTQ Corporation have jumped 12.3%, from 77 cents to 86.5 cents, in the last three trading days since the release of strong 1Q (ended June 2012) results.

Net profit stood at S$4.7 million compared with S$229,000 a year ago. For details of the results, click on the press release here.

The strong performance follows on FY12's revenue growth of 40% to S$128.4 million, mainly due to contributions from Premier Sea & Land, which "performed better than expected."

MTQ had, in July 2011, acquired 100% of Premier, a provider of oilfield equipment primarily used in drilling applications, for US$19.3 million ($23.7 million).

For FY12 (ended March 2012), MTQ's net profit attributable to shareholders, which included a write-back of tax provision of S$3.4 million, surged by 37% yoy to S$14.6 million.

The dividend payout for FY12 was 4 cents a share.

Key takeaways from the AGM held last Friday:

Mano Sabnani, ex-editor of Today and Business Times

1. Engine systems division: Shareholder Mano Sabnani asked if MTQ would divest this division as it generated only $1.42 million pre-tax profit in FY2012 on assets of $34.3 million.

(Operating in Australia, this division specialises in diesel fuel injection and turbocharger sales and services. In addition, it also distributes Bosch products such as spark plugs, wipers, brakes, starter motors and alternators).

MTQ chairman Kuah Kok Kim said, to put things in perspective, a few years ago, the contribution from engine systems division was almost equal to that from the oilfield division of MTQ.

In addition, the engine systems division is a good hedge against the oil & gas industry which can be very cyclical.

Shareholder Jimmy Chua asked: Why the thin profit margin?

Mr Kuah said the business can't be compared with MTQ's oilfield business, whose profit margin is better but the prospects of turnover expansion are relatively restricted.

In the distribution business (ie, the engine systems division), the turnover would increase significantly if there additional major agency lines were acquired, he explained.

L-R: Executive chairman Kuah Kok Kim, CEO Kuah Boon Wee and independent director Huang Yuan Chiang. Photo by Nicole Ng.

2. Neptune Marine Services: MTQ has invested A$14 million for a 17.4% equity stake in Neptune Marine Services, which is listed on the Australian Stock Exchange.

Headquartered in Perth, Neptune provides offshore engineering solutions to the global oil and gas, marine and renewable energy industries.

MTQ, in prior press releases, has said that it viewed Neptune’s offshore capabilities as a strategic extension of its predominantly workshop-based operations in Singapore and Bahrain.

To shareholder Sabnani's questions on the rationale for the investment, Mr Kuah said: "Their expertise and activities give us a new dimension in the oil & gas sector. If the opportunity arises, we can have  project cooperation with them."

CEO Kuah Boon Wee, who sits on the board of NMS, noted that the company has gone through a lengthy restructuring process, and MTQ is keeping a close watch on developments before embarking on any business projects with NMS.

In the meantime, partly reflecting market weakness everywhere, the equity stake has gone down by about half in value.

On its balance sheet as at end-March 2012, Neptune accounted for about S$14 million out of S$18 million of the equity investments owned by MTQ. The rest are shares of Singapore-listed companies.

Shareholder Ng Kwong Chong posing a question. Photo by Nicole Ng

3. Bahrain operations: MTQ's greenfield project in Bahrain generated $1.1 million sales in FY12.

"The performance is very much up to our expectations," said Mr Kuah. "The business commenced, to all intents and purpose, only in Sept 2011 when we received the API (American Petroleum Institute) certification."

In Bahrain, MTQ is offering services to repair and maintain oilfield equipment in the Middle East region, especially Saudi Arabia. The oildfield division is a core business that MTQ has grown in Singapore over the decades.

MTQ's non-current assets are worth S$24.2 million. Said Mr Kuah: "We are seeing great potential for the business to pick up."

Asked about difficulties posed by political problems in the country, he said MTQ's plant had not suffered any physical damage from protesters but the company does face challenges hiring senior executives for relocation there due to their negative perceptions.

The reality on the ground is quite different, as Mr Kuah assured shareholders. "I go there every month and I don't feel anything negative there at all. Life is normal and you may find it difficult to get a hotel or restaurant booking, in fact. So we need to put things in perspective."

He said start-up costs have been within budget but, because of business sensitivity, MTQ does not reveal its profits and losses by geographical segment.

Recent story: MTQ CORP: Net profit for FY12 up 37%, steady cashflow and dividend

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#2 MC KING 2012-08-13 20:35
Strange that nobody asks about their 5% stake in another listed singapore company, Hai Leck. The company is not doing well and the shares are hardly traded.
#1 Musicwhiz 2012-08-01 06:44
If Engine Systems division continues to earn less than their cost of capital, and it apparently seems to be so from the segment financials, then MTQ should consider divesting the division. Even though it may serve as a buffer during O&G cycles, one wonders how much profit and cash flow it can continue to contribute to the Group. The CEO says it is cash-flow positive, but the require maintenance capex for this division may be too high for comfort, draining precious FCF which could be channelled into either Bahrain or to build up PSL and source for other M&A opportunities.

My 2-cents.

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