Excerpts from analysts' report


mtq montage

JesalynWong3.15RHB Research analysts: Jesalyn Wong (left) & Lee Yue Jer, CFA

FY15 core PATMI of SGD11.8m missed as revenue slowed at the oilfield engineering segment in Singapore. FY15 gross margins of 31.3% were comparable to FY14’s 33.1%. Bahrain revenues doubled YoY, but could not fully offset the weakness in Singapore. Downgrade to NEUTRAL with a lower SGD0.79 TP (11x FY16F P/E, 4% upside), as earnings will likely stay low in the next two quarters, although long-term investors will find value in its high cash flow and yield.

 

FY15 (Mar) core PATMI at SGD11.8m. Adding back the SGD6.8m impairment cost from Binder Group and the engine systems segment, FY15 core PATMI of SGD11.8m (-51% YoY) met 85% of our original FY15 estimate. This was attributed to weakness in the Singapore market and sustained losses at Binder Group. Strong improvements in Bahrain where revenues doubled YoY amidst healthy activity levels helped to partially offset weak Singapore operations.

Maintenance cannot be deferred forever. Customers have been using surplus equipment to defer maintenance costs in a bid to wait out low oil prices. However, such deferment is only a short-term measure and customers will have to carry out the necessary maintenance works eventually. With oil prices having turned the corner, we may see some operational improvement for MTQ within the next two quarters.

Value in cash flow at 4x P/CF, 8x P/FCF. MTQ’s operating cash flow in FY15 was strong at SGD30.8m and we see this supporting the SGD0.04/share dividend. Its net gearing was a mere 11.2% with SGD44.1m in cash. Even in our lower estimates, MTQ still generates c.SGD27m-30m in operating cash flow annually, and long-term investors could see value with P/CF and P/FCF ratios at 4x and 8x respectively.

Downgrade to NEUTRAL (from Buy) with a lower SGD0.79 TP (from SGD1.43). Analyst Jesalyn Wong will assume coverage of this counter. We cut FY16 earnings estimate by 37.5% as we believe earnings are likely to stay low in 1HFY16 due to clients’ deferment of maintenance works. Downgrade to NEUTRAL with a lower SGD0.79 TP, based on 11x FY16F P/E due to a lack of a near-term catalysts. Long-term investors should note that our DCF value is SGD1.30/share, based on 9.3% WACC and 1% terminal growth.

Full report here.


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