WITH MTQ Corporation confident of sustaining its dividend payout, it's not surprising that the company and the chairman have been buying MTQ shares.
The total dividend paid in the financial year that ended 31 March 2009 (as well as for FY08) was 3 cents a share, which if maintained going forward will translate into a yield of 4.6% at the recent stock price of 65 cents.
In contrast, the yield for cash deposits in the bank is less than 1% a year.
While MTQ can be expected to continue generating healthy cashflow from its business, will its upcoming three-year US$20 million start-up project in Bahrain suck up funds and undermine the dividend payout (until it is up and running and contributing to the bottomline)?
That is the question that a fund manager raised at Wednesday's (July 15) meeting, attended by analysts and NextInsight, with MTQ management at the latter’s office in Pandan Loop.
“Every year we generate free cash flow inspite of our generous dividend payment, and our two existing businesses now don’t require much capex, especially the Singapore side because four, five years ago, we started replacing our facility and that process has been completed,” said Mr Kuah Kok Kim, chairman of MTQ.
The Singapore operations mainly repair and recondition oilfield equipment for drilling & exploration of oil & gas
MTQ, as of March 31 this year, had $4.7 million in bank borrowings and $21.98 million cash in hand.
For the year ended Mar 31, MTQ reported a 6% rise in revenue to $89.9 million.
Net profit dropped 68% to $12.1 million – a percentage change that should be seen in the light of a one-off divestment gain of $28.2 million in the year ended Mar 31 ’08.
Excluding the divestment gain, the latest-year profit grew 26%.
The Bahrain project – which involves replicating MTQ’s business in the world’s biggest oil drilling region, the Middle East - would be financed through internal cash flow and external financing.
On whether the project, which is now in the initial design phase, would affect MTQ’s future dividend payout, Mr Kuah said: “I don’t believe so.”
He added: “We are fortunate in that we have some cash in hand and continue to generate free cash flow, and we also have a good banking relationship.
"Put it this way, notwithstanding the Bahrain project, if tomorrow we come upon a good acquisition opportunity, we will not hesitate to take a serious look at it.”
The outlook for the project continues to be good: In the Middle East, the number of active rigs remained stable as of March 2009 despite the global economic slowdown while the US saw a 43% decline compared to March 08.
Asked why MTQ had a share buyback programme (7.48 million shares were bought back in FY 09) despite the stock’s relatively small shareholder base and relative illiquidity, Mr Kuah said:
“We are focused on running the business as efficiently as we can, keeping the market as informed as we can, and doing what’s best for shareholders. You see, we have cash in the bank earning less than 1% in interest. We know our shares will give us 4-5%.”
For more on MTQ, read:
MTQ: Profit grew 26% (discounting one-off gains)
MTQ: Investing US$20 m in Bahrain venture
MTQ'S William Fong: From lorry driver to group financial controller
