MTQ's Blossomvale has increased its investment in Neptune Marine Servies (NMS), buying another 48 million shares at around 3 AUD cents, to increase their stake to 17.44% (316.5 million shares).
Their average cost has now been reduced to 4.42 AUD cents, and for the three purchases from March 26 - March 30, they sank in about A$1.44 million.
Total cost of investment is now A$14 million.
FY12 (ended 31Mar12) full-year results just out this morning.....
http://info.sgx.com/webcoranncatth.nsf/V...4002212BC/$file/FY2012_SGX_Announcement-final.pdf?openelement [results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...4002212BC/$file/MTQ_FY2012_Press_Release-Final.pdf?openelement [press release]
Including the Premier Group acquired in last FY, MTQ's established Oilfield Engineering Division is now a solid profit generator. It should be even better when the new facility in Bahrain comes up to speed within the next 2 years.
An unchanged Final dividend of $0.02/share declared, which gives a total dividend payout of $0.04/share for FY12. I guess MTQ's shareholders should be happy to collect regular dividends while watching the growth of MTQ's businesses over time.
Although I am happy to collect regular dividend, when I noted the share issue expense of $75k just to collect $1mil from the scrip dividend scheme, I am not too pleased.
With cash and cash equivalents of $27m, is there a need for the scrip dividend, where shareholders end up with odd lots at the expense of $75k?
Considering that profitability (FY12:$14.6m, FY11:$10.7m) was enhanced by :
a) A reduction of $1m from depreciation expense due to change in accounting policy.
b) Write-back of tax provisions of a subsidiary (about $3m?)
The result could have been worse than last financial year.
Lets hope going forward, the full 12 months of contribution from Premier Group will bring stronger performance.
(07-05-2012, 03:13 PM)wsreader Wrote: [ -> ]Although I am happy to collect regular dividend, when I noted the share issue expense of $75k just to collect $1mil from the scrip dividend scheme, I am not too pleased.
With cash and cash equivalents of $27m, is there a need for the scrip dividend, where shareholders end up with odd lots at the expense of $75k?
Considering that profitability (FY12:$14.6m, FY11:$10.7m) was enhanced by :
a) A reduction of $1m from depreciation expense due to change in accounting policy.
b) Write-back of tax provisions of a subsidiary (about $3m?)
The result could have been worse than last financial year.
Lets hope going forward, the full 12 months of contribution from Premier Group will bring stronger performance.
I think there is hardly any difference compared to last year even if we exclude the tax provision and the depreciation expense reduction as FY 2011 and FY 2012 profits also suffered from varying amounts of one-off expenses.
Note C (pg 2): In FY 2011, they amortized $0.6 mil goodwill from Premier, impaired $1.09 mil of assets and reported $0.2 mil forex gains. But in FY 2010, they wrote back $0.5 mil of assets gains via impairment reversal and suffered $0.8 mil forex losses. Hence, the net one off expenses increased by $1 mil from FY 2011 to FY 2012.
Bahrain only reported 1.09 mil worth of revenue despite operating for > 6 months. I suspect this venture is reaping some heavy start up losses but over time (assuming the Management rationale for venturing to Bahrain is right), we should see profit growing from there. I hope the Management gives more figures on Premier performance in the Annual Report, how the core business is faring (excluding Premier and Bahrain) and how much losses is Bahrain generating (and its orderbook).
Other than that, I am glad they are retaining the dividends. I guess the scrip dividends allows the Management (and loyal shareholders) to accumulate shares cheaply considering the illiquid nature of the trading stock. I still opt for cash though haha !
(Vested)
Net profit (after tax) margin for the Oilfield Division was 16.3%, which was quite decent. But Engine Systems appears to have done worse as revenue was higher yet net profit was lower. Management appears to paint an overly optimistic picture in the press release by stating that revenue had increased, despite difficult conditions. In actual fact, Engine Systems is not showing any steady growth even after the recent 3 acquisitions and more than 1.5 years after their tie-up with Bosch for the Bosch Superstores. This is rather disappointing, and perhaps Mr. Market is applying a discount to MTQ's valuation due to the lacklustre performance of this division.
What's not so clear is the breakdown of performance between three aspects of Oilfield Engineering:-
1) The "core" business in Singapore, which includes servicing of Singapore clients and probably some long-standing clients from USA and the region. This of course involves servicing BPO for example.
2) The new start-up business in Bahrain, which was faced with teething problems due to the Arab Spring in CY 2011. Not only did it take some time to get the power up to the facility, hiring was also delayed and it also took MTQ longer than expected to get the certifications from the API. This resulted in revenues of just $1.1 million for FY 2012. However, it is not clear what the a) utilization rate of the facility is, b) if Phase II of the facility has been completed, or even earmarked for construction (no news!), c) margins on the contracts in Bahrain, and if these are comparable to the ones in Singapore, d) client base in Bahrain - i.e. securing new clients or simply existing ones which are diverting their BPO to Bahrain instead of Singapore. Management should do a better job of communicating such information to shareholders and also updating shareholders on business development efforts in securing new business. This will at least shed some light on the potential of the Bahrain Facility which has been touted since 2010.
3) The acquisition of PSL and its performance. PSL was originally acquired at an attractive valuation of about 5x PER, and was also debt-free (strong balance sheet) and profitable. Fy 2012 includes 9 months of operation of PSL and the Chairman had stated that PSL's performance was "better than expected", but how much better? How exactly has the acquisition complemented MTQ's existing business? By expanding their range of products/services or providing economies of scale in terms of carrying out their business activities? This part is not clear. [Do note too that MTQ has pushed debt onto PSL's Balance Sheet by securing a USD facility which was announced some time back, but the gearing will be consolidated into MTQ Group's Balance Sheet as PSL is wholly-owned].
If the above 3 segments were split out and the numbers provided, it would give more clarity on how the business is doing; this in turn will allow shareholders to decide if the intrinsic value of MTQ is higher than the current market price accorded by Mr. Market.
Another aspect which was NOT mentioned was MTQ's continual investment in NMS, which has raised their stake to 17.44%. NMS continues to see poor results and the share price is also languishing at about AUD 2.8 cents, while MTQ's cost of investment is about AUD 4.42 cents. While I agree that one should not view this investment from a short-term perspective, Management should at least articulate NMS' plans to increase profitability and how their investment in in makes sense. Nothing was mentioned in said press release.
A quick glance at the financials shows that revenues had grown but gross margin has suffered due to sales mix. About 42% of revenues came from Engine Systems which has weaker gross margins. A lot of one-off costs have also been imputed into the financials, and this would include depreciation on the facility in Bahrain, extra hiring costs and training relating to staffing of the facility, additional opex and overheads (utilities, rental, etc) and other related costs (e.g. transportation, certifications); not to mention the start-up losses due to the delays arising from Arab Spring (e.g. workers hired but left idle as plant has to remain shut due to lack of power supply as a result of riots).
Finance costs have tripled but fortunately are still only $1 million but it already takes a significant chunk off operating profit of $15m, and are set to rise further if PSL draws-down on its loan facility. The problem is not knowing the magnitude of the one-off costs and how much of it can be reduced in the next financial period through economies of scale etc.
Balance Sheet has also deteriorated significantly with loans taking up $45m against cash of about $27m; while Receivables and Inventory have also gone up due to higher level of business activity and more stocking-up. The only bright spark here is probably the Cash Flow Statement, which shows $20.5m of OCF and about $4.8m of capex, leaving about $15.7m of FCF. Whether this is the steady state of the business or whether there would be more capex is open to question, but since business is Bahrain is still in its early stages I suspect cash flows could improve significantly in the years to come, provided they keep capex requirements low. MTQ does NOT have a very illustrious history of FCF generation, so it is critical to observe if the business will enter a steady-state "mature" phase characterised by rising FCF and reinvestment in suitable rate of return projects.
Oh yes one more thing - MTQ will begin quarterly reporting starting 1Q 2013, so expect their next result to be out by early Aug 2012.
MTQ's latest AR 2012 unfortunately contains not much information about operational results, apart from the usual segmental reports at the back of AR. There was also not much commentary from the Chairman and CEO on the operations, plans and prospects of the Company though there was some review done for the financial year.
The AGM will be held on July 27, 2012 at 10:00 a.m. at Carlton Hotel. This should be a good opportunity to engage the new CFO Dominic Siu (who replaced the outgoing CFO William Fong more than a year ago) and CEO Mr. Kuah Boon Wee on MTQ's direction going forward, the situation in Bahrain, Phase II of the facility in Bahrain, revenue generation for Oilfield Engineering in Bahrain versus Singapore, margins for both divisions, plans for Engine Systems and the performance of PSL. I probably plan to also engage them on their NMS stake, NMS's plans for expansion and whether they are going to partner them on subsea contracts. Does MTQ intend to further increase its stake in NMS?
Also of note is that they had paid down most of their USD loan facility after financial year end (March 31, 2012), so their Balance Sheet for 1Q FY 2013 (results should be out by end-July) should show a slightly cleaner Balance Sheet, hopefully with a Net Cash Position. Assuming cash flow generation remains strong and with little capex requirements (previous annual maintenance capex was about $5M), and if Bahrain is chugging along fine, 1Q 2013 should see some FCF being generated.
What's disappointing is that Engine Systems continues to generate dismal margins and probably earns less than its cost of capital, so the key is what does MTQ plan to do with it? (Methinks it should just sell it and focus on Oilfield like what it did with Subsea Robotics ROV division so many years ago!).
Views are welcome.
(Vested)
MTQ released its 1Q FY 2013 results this morning. Revenue was up 57% to $38.4 million while gross profit was up 64% to $13.7 million. Profit attributable to shareholders was $4.7 million, which was about 20x higher than the corresponding period due to a low base effect. Net margin improved to 12.2% from a depressed 0.9% due to start-up costs in Bahrain in the last period.
Note that from the press release, it seems Bahrain has yet to turn profitable and most of the current earnings are driven by PSL, Pemac and the Singapore Oilfield Engineering Division. Engine Systems got off to a “good start” (+10% revenues) but there was no segmental breakdown for 1Q so it would not be possible to assess how it did. It would be interesting to find out the impact to MTQ Group once Bahrain got going and turned a profit, and the cash inflows should boost and strengthen MTQ’s Balance Sheet further.
Interestingly, profit for 1Q 2013 is already higher than profit for 1H 2012 of $4.3 million; so on a year on year comparison basis, I would expect MTQ to do better in 1H 2013 than in 1H 2012 barring unforeseen circumstances. 1Q 2013 also saw OCF of $4.4m and FCF of about $3.9m. Contrast this to 1H 2012 which saw –ve FCF of $1.7m. Gross debt has been reduced from $45m to $34m due to repayment of USD term loan in April 2012; but cash balances have also dipped to $20m from $27m.
It would be interesting to find out more about how the business is doing and also NMS’ prospects at the AGM to be held tomorrow.
(Vested)
Musicwhiz, what do you do of the 6,49 M$ of losses (net changes in fair value in investment securities) that impacts the comprehensive P/L ?
This is the only serious negative in this quarter release.
And I see no detail about it.
(vested)