(04-03-2011, 02:58 PM)dydx Wrote: [ -> ]The acquisition of a 12% interest (comprising 200.0m new shares @AUD0.05/share) in ASX-listed and Perth-based Neptune Marine Services Ltd (NMS) for AUD10.0m (equivalent: $12.93m) in a swoop, by supporting - or more like taking advantage of - a major new capital raising by NMS, shows how shrewd and gutsy KK Kuah and his son are as investors.
My view is that MTQ has bought a nice stake at a great price in a decent - and potentially synergistic - business currently undergoing restructuring. We shall know from 10Mar11 - the scheduled date for NMS to recommence trading on ASX - onwards how well this new investment will do for MTQ. By simple math, every AUD0.01 gain over the AUD0.05 acquisition cost for each of the 200.0m NWS shares will bring MTQ a potential gain of AUD2.0m (approx. $2.586m) - translating to $0.0268/share, based on the latest 96.512m outstanding issued shares.
Would Mr Market reward MTQ in its share price, for KK Kuah's investment skills and the potential gain from this investment in NWS?
I don't deny that father and son are shrewd and gutsy, but will this investment translate into solid returns for the business, and by extension, for shareholders?
NMS is a loss-making company and the fact that they need to raise capital implies a capital intensive business which may involve heavy capex. I am cautious about this kind of business as I was previously vested in Ezra (also in subsea) and the heavy capex requirements means high financing costs and frequent fund raising from capital markets.
Even though it may appear that MTQ got the shares "cheap" at A$0.05 cents (when the last traded price was A$0.205), it remains to be seen if this investment will do well for them in time.
Another concern of mine is that they are pumping in nearly S$13 million into this Company - so will they have enough working capital for a) Capex for new Bahrain Facility, b) operations and running costs for new facility + existing Pandan Loop facility and c) Expanding and maintaining their distribution business in Australia post-acquisition of Northern Territory? I recall Mr. Kuah Boon Wee mentioning that the going was tough in the Engine Systems business, and that the operations in Bahrain will not see a return once started as momentum needs to build up.
Therefore, I am concerned about a potential cash crunch, and thus cannot feel as bullish as I should.
sorry, maybe i am wrong.
but do they hold a stake in Hai Leck as well?
(04-03-2011, 05:55 PM)valuestalker Wrote: [ -> ]sorry, maybe i am wrong.
but do they hold a stake in Hai Leck as well?
Yes, it is under Violetbloom if I am not wrong.
The 200.0m new NMS shares MTQ bought at AUD0.05/share came from the 1,200.0m new shares (minimum size) issued at AUD0.05/share under a 3.6-to-1 Non-renounceable Entitlement Offer (or Rights Issue) just completed by NMS. Why is it a great price to MTQ?
The trading of NMS shares has been under voluntary suspension since 16Nov10 (last done price: AUD0.205). Because of the suspension, and the fact that Entitlement Offer was structured on a non-renounceable basis (i.e. existing shareholders who do not intend to take up their entitlements were not given a choice to sell them to others in the market), apparently quite many existing shareholders chose not to take up their entitlements - even though the issue was structured and priced in a shareholder-friendly manner. This had given rise to an opportunity for MTQ and others to buy good-sized stakes in NMS - which in effect also diluted the interests of those existing shareholders who chose not to take up their entitlements - at an attractive price originally designed for the benefit of the existing shareholders. This is the main reason why I said KK Kuah and his son are shrewd investors.
No doubt the AUD60.0m (nett proceeds, after expenses: AUD54.6m) worth of new capital will substantially strengthen NMS' B/S and finances.
As to whether NMS will see sustained profitability and better days ahead for its established business of providing diversified services to the large Australian oil & gas sector, only time will tell, but we should be able to find some pointers by reading the entitlement offer document.....
http://www.neptunems.com/sites/neptunems...tus(1).pdf
Business Times - 05 Mar 2011
MTQ Corp buys stake in Neptune Marine Services for A$10m
By JOYCE HOOI
MTQ Corporation is buying a 12 per cent stake in Neptune Marine Services Ltd (Neptune) for A$10 million (S$12.9 million) through its subsidiary, Blossomvale Investments Pte Ltd.
Neptune, an offshore engineering firm listed on the Australian Securities Exchange (ASX), is based in Perth.
MTQ bought its 12 per cent stake - or 200 million new ordinary shares - in Neptune as part of the latter's shortfall offer, at A$0.05 apiece.
The shortfall offer was produced after Neptune made a pro rata non-renounceable entitlement offer to its eligible shareholders of 3.6 new ordinary shares in Neptune for every one ordinary share held at an issue price of A$0.05 per new share, as part of a restructuring effort.
Part of the shortfall (the difference between the number of new shares offered and the number of new shares actually applied for) was bought by MTQ Corp.
The acquisition was fully funded by MTQ's internal cash resources. According to a statement issued by MTQ, Neptune's involvement in the offshore sector will serve as a 'strategic extension of its predominantly workshop-based operations in Singapore and Bahrain'.
In turn, Neptune stands to strengthen its balance sheet and 'meet its obligation to its lenders and vendors, as well as generate additional working capital'.
Based on the full allotment of 200 million shares, the investment in Neptune will increase MTQ's aggregate cost of quoted investments from $7.18 million to $20.11 million.
The total market value of the quoted investments held by MTQ will also increase from $6.86 million to $19.79 million.
For the half-year ended Sept 30, 2010, MTQ Corp posted a 25 per cent drop in net profit, from $7.2 million to $5.4 million. Revenue for the same period rose 12 per cent to $44.6 million.
NMS originally had 447,966,326 issued shares, and was trading at A$0.205 before suspension.
From the attached announcement, a total of 1,205,322,776 shares were issued at A$0.05, raising capital for NMS and clearing off the loans from their Balance Sheet (as well as providing them with working capital). The new enlarged issued share capital of NMS is now 1,653,289,102 shares.
Market cap of NMS before rights issue = A$91.83 million.
Assuming the same market cap after the rights issue, the ex-rights trading price for NMS should be A$0.0555 per share. Note that MTQ has subscribed for and been alloted 200 million shares (representing about 12.1% of the enlarged share capital) at A$0.05 per share.
NMS resumes trading on ASX tomorrow (March 10, 2011).
(04-03-2011, 03:51 PM)Musicwhiz Wrote: [ -> ]NMS is a loss-making company and the fact that they need to raise capital implies a capital intensive business which may involve heavy capex. I am cautious about this kind of business as I was previously vested in Ezra (also in subsea) and the heavy capex requirements means high financing costs and frequent fund raising from capital markets.
Another concern of mine is that they are pumping in nearly S$13 million into this Company - so will they have enough working capital for a) Capex for new Bahrain Facility, b) operations and running costs for new facility + existing Pandan Loop facility and c) Expanding and maintaining their distribution business in Australia post-acquisition of Northern Territory? I recall Mr. Kuah Boon Wee mentioning that the going was tough in the Engine Systems business, and that the operations in Bahrain will not see a return once started as momentum needs to build up. Therefore, I am concerned about a potential cash crunch, and thus cannot feel as bullish as I should.
I am very much sharing exactly the same thought with you on this. It is quite clear that the Kauhs have a vision for growth. Actually, i would expect this year would be little bit tough for them due to the expense at the start-up workshop and ongoing turmoil in the middle east which may affect the oil field engineering division. Profit contributing from engine division has not alway been predictable (Lost 5-7 millions FY04,F05 if i remember correctly). The new investment could potentially end up with a new Subsea division, albeit money losing at the beginning.
Nonetheless, i regard this is a positive thing for MTQ for long run... i still remember well the RCL Tomlinson share acquisition and eventually the divestment at multiples of initial investment after few time MTQ tried unsuccessfully to increase stakes.. and MTQ did pay the shareholder (including myself) very well.
Hi SLC81,
Thanks for sharing your thoughts. I was not a shareholder of MTQ back then when they divested RCR Tomlinson and paid out a jumbo dividend, but I was pretty amazed at their timing and how they managed to exit such a large position and book a significant gain.
I guess what you say is true - the Kuahs are probably in this for the medium to long-term and from what I had read about Neptune Marine Services (presentation dated February 1, 2011 as posted on ASX website), they actually consulted PwC with a strategic plan to cut overheads (i.e. staff costs), divest non-profitable segments and re-focus on their core business. The CEO was also replaced as recently as October 2010 and I suspect this was because of NMS' troubles. Probably, what I can conclude is that the firm started to "diversify" too much and lost its focus, resulting in unnecessary expenses incurred on loss-making ventures and ending up in a big hole.
The rationalization exercise and subsequent fund-raising can help to realign the Balance Sheet to a net cash position, so that finance charges are manageable, expenses are drastically reduced and cash flows improved. I feel positive from what I had read so far but of course the real test is whether the execution works and if NMS can report a decent profit and generate good cash flows moving forward. I suspect father and son team at MTQ have probably gone through the financials with a fine-toothed comb and therefore decided to swoop and grab 200 million shares.....
Incidentally, NMS has resumed trading on ASX today. As I type this, the last done price is A$0.052 (A$5.2 cents) and it is trading in a range of A$0.05 and A$0.055.
Cheers!
Business Times - 24 Mar 2011
Bahrain faces uncertain future, security still tight
Shi'ites have not returned to work, in line with general trade union strike
(MANAMA) Traffic flowing into the Bahraini capital's business district appears to signal a return to normal, but the Gulf financial hub faces an uncertain future after police crushed a pro- democracy uprising.
Security remains tight in the district, home to a multitude of banks and investment firms which have earned Bahrain its reputation, and a heavy police presence has been kept in place across the archipelago.
Traffic would normally be a nightmare in Manama's business district which also houses ministries and embassies, but the flow of vehicles this week has been light during the day before vanishing at night as a daily curfew starts.
'It is still quiet,' said a waiter at a cafe next to the Bahrain World Trade Centre tower, where only three tables were occupied.
Bahrain faces an uphill battle to re-establish its reputation as a safe place to do business, after images of riot police and army tanks evicting protesters from central Manama's now destroyed Pearl Square were circulated worldwide.
According to the opposition group Al-Wefaq, 15 Bahraini Shi'ites have been killed since anti-government protests broke out last month.
Three Bangladeshi workers and three policemen have also been killed, Al-Wasat newspaper reported, bringing the total death toll to at least 21. The interior ministry, meanwhile, said that four policemen have died in the unrest.
Tanks remain stationed around business centres, malls and ministries, while masked policemen toting shotguns man checkpoints around Shi'ite neighbourhoods and villages.
Many Shi'ites have not been turning up to work, in line with a general strike called by the main trade union, which said that roads were not safe for many employees to leave their villages as many faced arrest.
The labour union on Tuesday suspended the action, saying that it had received assurances that Bahrainis on their way to work would not be targeted. But it is unclear if employees will heed the call.
'Most people don't want to go back to work until the army is pulled out,' said an accountant who took part in the protests. 'Some are not returning out of fear, but also because we have demands that haven't been answered.' The man, who declined to give his name, said that checkpoints also still control the roads to Shi'ite villages on the outskirts of Manama.
Human Rights Watch on Sunday urged Manama to 'end its campaign of arrests of doctors and human rights activists' after seven leading opposition activists and others were rounded up last week, while many others are still missing.
The interior ministry insisted the next day that security in Bahrain was 'stable' in the wake of the March 16 operation to crush the protesters' camp in Pearl Square.
Prime Minister Sheikh Khalifa bin Salman, whose Sunni family has ruled Shi'ite-majority Bahrain for 230 years, said that Bahrain will not only 'overcome' the crisis but 'emerge stronger'. -- AFP
Fri, Apr 15, 2011
The Business Times
CFOs and business decision-making
MTQ's CEO works closely with his finance team and taps on his CFO as a resource in making decisions.
By Michelle Quah
CFO - TURNED - CEO Kuah Boon Wee knows from personal experience the importance of top management tapping on the expertise of the finance function when it comes to making decisions on running the business.
The group chief executive of marine services specialist MTQ joined the company in July last year, from his previous positions as CEO of port operator PSA International's Singapore Terminals and its group CFO.
Prior to that, the engineering graduate - who is also a UK qualified chartered accountant - had served as CFO of ST Engineering.
'When you are the CFO, you always have a tendency to say that you would like to be involved in the business - with the assumption that you were not as involved as you would like,' he says.
'So, now, I am very conscious of the need to have help - in helping me plan and think, rather than in helping me execute. I work closely with my CFO and my whole finance team. If there is only one person doing the thinking, there are only so many plans you can execute. So, I do feel I'm more conscious of the need to bring my CFO into the business decision-making process and really tap on him as a resource.'
This increased involvement of the CFO is a growing trend, according to a recently released KPMG survey of more than 440 senior finance executives from around the world. Almost half of the survey respondents said their department now plays a larger role in strategy development and execution than five years ago.
Some said the finance function is being viewed as a centre of relief from the complexity that has grown out of the recent financial and economic crisis - with the CFO's key role being an anticipator of the major factors that move the business he is in.
They said that processes internal to finance are instrumental in helping companies manage their response to forces such as contracting demand, capital shortages, increasing regulation and uncertainty about the direction of tax policy.
In MTQ's case, Mr Kuah's recognition of the value provided by the finance function's unique insight has led him to widen its role.
'The finance function in the company, in the past, has always had a very reporting-driven structure. Business decisions - to the extent of the thinking behind the decisions - tended not to involve the finance function very much in the past. And that's a part I'm trying to change - for example, when we plan an investment, the process is structured to take into account the input from the finance team.
'We are trying to do a bit of M&A (mergers and acquisitions) to grow the business, and the finance team is a big part of that, in terms of looking at businesses and all that,' he said.
An individual company's unique circumstances will determine the roles it requires its finance function to play - and decides, as a result, that particular finance function's level of expertise in management-level matters.
For example, KPMG's survey found that, typically, finance executives at larger companies are more likely to report strong abilities at managing mergers and acquisitions and responding to investors and analysts than are their peers at smaller companies. This is because they are more likely to acquire companies and to have large shareholder bases that need active management.
Still, regardless of the capabilities which individual finance departments may develop, finance executives are united in the belief that their role is set to grow in coming years - especially those in North America and Asia and those in high-growth industries.
Mr Kuah says: 'In the past, the lead finance person was the person who managed to give you the monthly accounts and make the general ledger balance. Increasingly, you're not expecting the leader of the finance function to get involved in that. You're expecting the leader of the finance function to contribute more in terms of giving input to decision making and interpreting the results and, really, it's changed a lot.
'And it will continue to change because of risk management issues. That's going to become an increasingly big part of the finance role. And, if you are dealing with cross-border transactions, there's the need to think about cross-border planning, the need to think about reporting systems elsewhere.'
Changing the culture
He goes on to say: 'If you look at traditional companies in the past, you had a manager, a business team, an operations team and sort of a technical team. And, when decisions were made, the finance team was left to essentially depict, or make sense of, what was done.
'I am trying to change the culture - to get the finance function involved in management meetings so that, when we assess projects, their input is considered. I think it's important to get finance involved in thinking about what sort of margins we should be aiming for, rather than using the historical approach of saying there's a gut feel in terms of price and just letting the margin be the result rather than the goal.
'So, these are some of the things that I think we are trying to do - to guide the operational guys, give them better tools. But it is a challenge; I think the last thing they want is to feel like the bean counters are telling them how to run their business. But it's important to get a better balance.'
Respondents to KPMG's survey said as much, asserting that the finance function has the combination of skills, organisational scope and analytical mindset that will provide support central to overall business success in the next five years.
As for what CFOs will need to focus on, to do their job well in the years to come, Mr Kuah said: 'I think the biggest challenge for CFOs - and I faced this myself, having worked in different companies - is that it takes time to get to the point where you have a good understanding of what goes behind the numbers. And, these days, CFOs will have to know a lot more about the business than they would have been expected to in the past.
'And I think better and more timely information is always a challenge when you move into a cross-border environment. Certainly, I think a lot more companies would be having the need to think about how we can have better systems across countries - common platforms.
'And then there's the issue of training. You have to manage bigger teams in different countries. If the people inputting information overseas are not well trained, don't sufficiently understand what they're doing, then when you try and interpret the end-result, it won't make much sense.
'So, I say the CFO has to be more focused on guiding and managing a team, more so than in the past where he probably felt it was more a case of individual output - now, it's more of a team output,' Mr Kuah concludes.
This is the second in a series of CFO and CEO spotlights brought to you by KPMG in Singapore.
The 'A New Role for New Times' interview series and more information on KPMG Institutes is available on kpmg.com.sg/institutes
This article was first published in The Business Times.