Oil & Gas - Equipment & Svs│Singapore
October 27, 2014
COMPANY NOTE
MTQ Corporation Ltd
MTQ SP / MTLS.SI
Market Cap
Avg Daily Turnover
Free Float
Current
S$1.20
Target
S$1.56
US$143.3m
US$0.08m
40.9%
Prev. Target
S$182.9m
S$0.11m
152.4 m shares
Up/Downside
S$
29.6%
Conviction|
Return of the prodigal son
Notes from the Field
————————————————————————————————————————
YEO Zhi Bin
T (65) 6210 8669
E [email protected]
Company Visit
Channel Check
Expert Opinion
Customer Views
————————————————————————————————————————
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‘‘
… I recently read an article
that listed the top ten SGX listed
companies by total shareholder
value from 1 Jan 2004 to 1 Jun 2014
and was pleasantly gratified to see
MTQ’s name featured, having
delivered a total return of 1,190%. As
investment horizons seem to get
shorter, I think it is important to
reflect on doing what is best for all
shareholders in the longer term.
Chairman Kuah Kok Kim in MTQ’s FY14 annual
report
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Price Close
151.2
1.60
135.7
1.40
120.1
1.20
104.6
1.00
600
89.0
Vol th
400
200
Jan-14
Apr-14
Jul-14
Source: Bloomberg
EFAPChartPriceVolRelDaily|
52-week share price range
1.20
1.81
1.15
1.56
Current
Target
Far from being wasteful, MTQ can be construed as a story of filial
piety, with the son, CEO Kuah Boon Wee, returning to help his father
grow the business. Since his succession, Mr Kuah and his management
team have grown the group’s earnings by a CAGR of 31% for FY11-14
on the back of three acquisitions over the last three years.
Our base-case scenario factors in a
consolidation of MTQ’s acquired
businesses. We forecast 14% earnings
CAGR for FY14-17, with earnings
accelerating after bottoming in FY15.
Given the undemanding valuations,
we initiate coverage with an Add
rating and target price of S$1.56
(blend of 7x CY16 P/E & 1.5x CY15
P/BV). Potential catalysts include
earnings
strength
and
accretive-acquisitions.
Return of the prodigal son
Mr Kuah Boon Wee succeeded his
father, Chairman Mr Kuah Kok Kim,
as CEO in FY11, armed with an
impressive CV, having served as CEO
of PSA Singapore terminals and CFO
of
ST
Engineering.
As
the
management team was strengthened,
MTQ embarked on a series of
earningsand
value-accretive
acquisitions (Premier group acquired
at 3.5x trailing P/E and Neptune at 1x
P/NTA) to transform itself from an
oilfield equipment services provider to
a diversified services provider for the
oil & gas industry. As a result, its
earnings took a much steeper
trajectory from FY11.
Laying the foundations
While MTQ’s businesses are relatively
small and compete in a very
fragmented industry, the group enjoys
healthy gross margins of 35-40%. The
business is also highly cash-generative.
For FY11-14, its operating cash flow
was, on average, 1.6x net profit. We
forecast 14% core earnings CAGR for
FY14-17 as it consolidates its acquired
businesses. We expect the growth to
be
underpinned
by
improving
profitability from Neptune (a subsea
specialist) as well as the scaling up of
both the Bahrain facility (an organic
greenfield development targeting the
Middle East market) and Binder
(focuses on pipe support product
range).
Undemanding valuations
Backed by a solid management team
and organic growth on a stream of
positive FCF, investors can now Add
the stock at 3.9x CY15 EV/EBITDA,
~40% discount to peers’ average of
6.3x. On a P/BV basis, the stock also
looks undervalued at 1.3x CY14 P/BV
vs. forward ROE of 18%, while
offering a forward dividend yield of
3-4%.
Financial Summary
Relative to FSSTI (RHS)
1.80
Oct-13
|
Revenue (S$m)
Operating EBITDA (S$m)
Net Profit (S$m)
Core EPS (S$)
Core EPS Growth
FD Core P/E (x)
DPS (S$)
Dividend Yield
EV/EBITDA (x)
P/FCFE (x)
Net Gearing
P/BV (x)
ROE
% Change In Core EPS Estimates
CIMB/consensus EPS (x)
Mar-13A
208.7
34.91
15.40
0.13
26.0%
9.44
0.029
2.40%
6.31
19.7
26.4%
1.63
19.2%
Mar-14A
313.3
42.93
24.18
0.16
24.6%
7.58
0.037
3.05%
5.06
248.8
20.2%
1.40
19.9%
Mar-15F
294.6
42.23
22.15
0.15
(8.2%)
8.26
0.037
3.05%
4.78
8.3
6.3%
1.24
15.9%
0.81
Mar-16F
321.0
50.43
28.60
0.19
29.1%
6.40
0.045
3.75%
3.67
12.4
(4.4%)
1.08
18.1%
Mar-17F
337.2
58.52
35.48
0.23
24.1%
5.15
0.050
4.17%
2.73
NA
(16.3%)
0.93
19.4%
0.85
SOURCE: CIMB, COMPANY REPORTS
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
MTQ Corporation Ltd│Singapore
October 27, 2014
PEER COMPARISON
Research Coverage
Bloomberg Code
ASL SP
CSE SP
MMT SP
MTQ SP
ASL Marine
CSE Global
Mermaid Maritime
MTQ Corporation Ltd
Market
SG
SG
SG
SG
Recommendation
HOLD
REDUCE
ADD
ADD
Rolling P/BV (x)
Mkt Cap US$m
196
273
371
143
Price
0.60
0.68
0.34
1.20
Target Price
0.66
0.66
0.53
1.56
Upside
11.0%
-2.7%
58.6%
29.6%
12-month Forward Rolling FD P/E (x)
3.50
50.0
45.0
3.00
40.0
2.50
35.0
2.00
30.0
25.0
1.50
20.0
1.00
15.0
10.0
0.50
5.0
0.00
Jan-11
Jan-12
ASL Marine
Jan-13
CSE Global
Jan-14
0.0
Jan-11
Jan-15
Mermaid Maritime
MTQ Corporation Ltd
ASL Marine
EFACChartValnBig1|
Jan-13
CSE Global
Jan-14
Jan-15
Mermaid Maritime
MTQ Corporation Ltd
EFACChartValnBig2|
Peer Aggregate: P/BV vs ROE
Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth
1.40
16.0%
1.20
13.7%
1.00
11.4%
0.80
0.60
0.40
4.6%
0.20
2.3%
0.00
Jan-11
Jan-12
25.0
80%
20.0
56%
9.1%
15.0
32%
6.9%
10.0
8%
5.0
0.0%
Jan-12
Jan-13
Rolling P/BV (x) (lhs)
Jan-14
Jan-15
-16%
0.0
Jan-11
Jan-16
ROE (See Footnote) (rhs)
-40%
Jan-12
Jan-13
Jan-14
12-mth Fwd FD P/E (x) (See Footnote) (lhs)
Jan-15
Jan-16
FD EPS Growth (See Footnote) (rhs)
EFACChartValnBig4|
Valuation
ASL Marine
CSE Global
Mermaid Maritime
MTQ Corporation Ltd
FD P/E (x) (See Footnote)
Dec-14
Dec-15
Dec-16
11.88
10.78
10.74
10.07
9.25
8.68
7.53
7.32
NA
8.08
6.79
5.40
Dec-14
0.60
1.68
0.64
1.28
P/BV (x)
Dec-15
0.57
1.52
0.59
1.12
Dec-16
0.55
1.38
NA
0.96
EV/EBITDA (x)
Dec-15
7.98
5.87
3.78
3.92
Dec-16
7.89
5.02
NA
2.93
Dividend Yield
Dec-14
Dec-15
1.89%
2.31%
4.44%
4.81%
0.00%
0.00%
3.05%
3.57%
Dec-16
2.52%
5.19%
0.00%
4.07%
Dec-14
8.63
6.81
3.55
4.85
Growth and Returns
ASL Marine
CSE Global
Mermaid Maritime
MTQ Corporation Ltd
FD EPS Growth
Dec-14
-23.9%
-68.2%
103.9%
-1.4%
(See Footnote)
Dec-15
Dec-16
10.2%
0.4%
8.8%
6.5%
3.0%
-100.0%
19.0%
25.6%
ROE (See Footnote)
Dec-14
Dec-15
5.1%
5.4%
17.3%
17.3%
8.8%
8.4%
16.8%
17.5%
Dec-16
5.2%
16.7%
19.1%
SOURCE: CIMB, COMPANY REPORTS
Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.
NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.
2
MTQ Corporation Ltd│Singapore
October 27, 2014
BY THE NUMBERS
Share price info
Share px perf. (%)
1M
3M
12M
Relative
-6.4
-25.3
-2.8
Absolute
-8.4
Major shareholders
Kuah Kok Kim
Maclean Investments Ltd
Tai Tak Securities
-29
-2.1
P/BV vs ROE
2.50
25.0%
2.00
20.0%
12-mth Fwd FD Core P/E vs FD Core EPS
Growth
14.0
80%
12.0
66%
10.0
51%
% held
1.50
15.0%
8.0
37%
24.5
1.00
10.0%
6.0
23%
4.0
9%
2.0
-6%
0.0
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
-20%
17.6
8.5
0.50
5.0%
0.00
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
0.0%
Rolling P/BV (x) (lhs)
12-mth Fwd Rolling FD Core P/E (x) (lhs)
ROE (See Footnote) (rhs)
FD Core EPS Growth (rhs)
Profit & Loss
We project 14% core earnings
CAGR for FY14-17, with an
8% earnings decline in FY15
(softer Singapore and shortfall
in activities in Binder), followed
by a 29% rebound in FY16.
(S$m)
Total Net Revenues
Gross Profit
Operating EBITDA
Depreciation And Amortisation
Operating EBIT
Financial Income/(Expense)
Pretax Income/(Loss) from Assoc.
Non-Operating Income/(Expense)
Profit Before Tax (pre-EI)
Exceptional Items
Pre-tax Profit
Taxation
Exceptional Income - post-tax
Profit After Tax
Minority Interests
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit
Recurring Net Profit
Fully Diluted Recurring Net Profit
Mar-13A
208.7
73.0
34.9
(8.5)
26.4
(1.5)
0.0
0.0
25.0
(4.3)
20.6
(4.0)
Mar-14A
313.3
103.8
42.9
(10.3)
32.6
(2.6)
0.1
0.0
30.1
0.3
30.3
(5.4)
Mar-15F
294.6
106.6
42.2
(11.2)
31.0
(2.3)
(0.5)
0.0
28.2
0.0
28.2
(5.1)
Mar-16F
321.0
121.0
50.4
(11.9)
38.6
(2.1)
0.0
0.0
36.5
0.0
36.5
(6.6)
Mar-17F
337.2
132.7
58.5
(12.5)
46.0
(1.2)
0.5
0.0
45.3
0.0
45.3
(8.2)
16.6
(1.2)
24.9
(0.8)
23.2
(1.0)
29.9
(1.3)
37.2
(1.7)
15.4
18.9
18.9
24.2
24.0
24.0
22.2
22.2
22.2
28.6
28.6
28.6
35.5
35.5
35.5
Cash Flow
MTQ has a highly
cash-generative business,
generating in FY11-14, on
average, operating cash flow
of 1.6x net profit
(S$m)
EBITDA
Cash Flow from Invt. & Assoc.
Change In Working Capital
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow
Net Interest (Paid)/Received
Tax Paid
Cashflow From Operations
Capex
Disposals Of FAs/subsidiaries
Acq. Of Subsidiaries/investments
Other Investing Cashflow
Cash Flow From Investing
Debt Raised/(repaid)
Proceeds From Issue Of Shares
Shares Repurchased
Dividends Paid
Preferred Dividends
Other Financing Cashflow
Cash Flow From Financing
Total Cash Generated
Free Cashflow To Equity
Free Cashflow To Firm
Mar-13A
34.91
Mar-14A
42.93
Mar-15F
42.23
Mar-16F
50.43
Mar-17F
58.52
(8.53)
(2.46)
1.23
(5.06)
(3.11)
4.69
(4.31)
(1.41)
(3.51)
21.84
(4.06)
1.92
(39.94)
2.28
(39.79)
27.00
6.16
0.00
(1.69)
0.29
0.26
(2.66)
(6.11)
32.26
(13.97)
1.50
(14.39)
0.99
(25.87)
(5.66)
0.00
0.00
(2.60)
0.00
0.00
(2.30)
(5.08)
36.08
(12.00)
0.00
0.00
0.00
(12.00)
(2.00)
0.00
0.00
(5.58)
0.00
0.00
(2.10)
(6.56)
36.71
(12.00)
0.00
0.00
0.00
(12.00)
(10.00)
0.00
0.00
(6.86)
0.00
0.00
(1.20)
(8.16)
46.05
(12.00)
0.00
0.00
0.00
(12.00)
(37.00)
0.00
0.00
(7.62)
(0.05)
31.43
13.48
9.06
(16.49)
(0.34)
(8.59)
(2.20)
0.73
9.32
0.00
(7.58)
16.50
22.08
26.58
0.00
(16.86)
7.86
14.71
27.01
0.00
(44.62)
(10.57)
(2.95)
35.45
SOURCE: CIMB RESEARCH, COMPANY
3
MTQ Corporation Ltd│Singapore
October 27, 2014
BY THE NUMBERS
Balance Sheet
With minimal maintenance
capex of S$12m p.a., we
expect MTQ to turn net cash
by FY16 (from 0.2x net gearing
at end-FY14).
MTQ historically enjoyed
healthy margins but margins
declined in FY14 due to a
change in sales mix on
consolidation of Neptune and
Binder. We expect margins to
expand, thanks to overhead
reduction and operating
leverage.
(S$m)
Total Cash And Equivalents
Total Debtors
Inventories
Total Other Current Assets
Total Current Assets
Fixed Assets
Total Investments
Intangible Assets
Total Other Non-Current Assets
Total Non-current Assets
Short-term Debt
Current Portion of Long-Term Debt
Total Creditors
Other Current Liabilities
Total Current Liabilities
Total Long-term Debt
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities
Total Non-current Liabilities
Total Provisions
Total Liabilities
Shareholders' Equity
Minority Interests
Total Equity
Mar-13A
41.7
80.0
29.3
2.7
153.7
77.2
0.0
19.4
6.7
103.3
Mar-14A
37.4
78.3
29.0
2.7
147.5
81.5
2.3
31.7
8.5
124.0
Mar-15F
53.9
76.7
28.2
2.7
161.5
82.3
1.8
31.7
8.5
124.3
Mar-16F
61.8
83.5
30.8
2.7
178.8
82.4
1.8
31.7
8.5
124.4
Mar-17F
51.2
87.8
32.3
2.7
174.0
82.0
2.3
31.7
8.5
124.4
9.5
52.1
6.2
67.8
64.1
7.3
49.6
6.9
63.8
58.6
7.3
48.4
6.9
62.6
56.6
7.3
52.8
6.9
67.0
46.6
7.3
55.4
6.9
69.7
9.6
0.0
64.1
4.4
136.3
110.4
10.4
120.8
4.6
63.2
3.8
130.8
131.0
9.7
140.6
4.6
61.2
3.8
127.7
147.5
10.7
158.2
4.6
51.2
3.8
122.0
169.3
12.0
181.2
4.6
14.2
3.8
87.7
197.1
13.7
210.8
Mar-13A
62.6%
65.0%
16.7%
(0.21)
0.73
17.11
19.4%
18.3%
93.74
72.20
101.6
29.9%
16.0%
Mar-14A
50.1%
23.0%
13.7%
(0.19)
0.86
11.20
17.8%
19.0%
92.19
50.81
88.6
20.8%
16.2%
Mar-15F
(6.0%)
(1.6%)
14.3%
(0.07)
0.97
12.41
18.0%
20.5%
96.01
55.61
95.2
17.7%
14.4%
Mar-16F
9.0%
19.4%
15.7%
0.05
1.11
16.76
18.0%
19.5%
91.35
54.02
92.6
22.1%
16.8%
Mar-17F
5.1%
16.0%
17.4%
0.23
1.29
32.89
18.0%
17.5%
92.71
56.33
96.6
25.6%
19.8%
Mar-13A
N/A
N/A
N/A
N/A
N/A
N/A
Mar-14A
N/A
N/A
N/A
N/A
N/A
N/A
Mar-15F
N/A
N/A
N/A
N/A
N/A
N/A
Mar-16F
N/A
N/A
N/A
N/A
N/A
N/A
Mar-17F
N/A
N/A
N/A
N/A
N/A
N/A
Key Ratios
Revenue Growth
Operating EBITDA Growth
Operating EBITDA Margin
Net Cash Per Share (S$)
BVPS (S$)
Gross Interest Cover
Effective Tax Rate
Net Dividend Payout Ratio
Accounts Receivables Days
Inventory Days
Accounts Payables Days
ROIC (%)
ROCE (%)
Key Drivers
Outstanding Orderbook (S$m)
Order Book Wins (S$m)
Order Book Depletion (S$m)
Average Day Rate Per Ship (US$)
No. Of Ships (unit)
Average Utilisation Rate (%)
SOURCE: CIMB RESEARCH, COMPANY
4
MTQ Corporation Ltd│Singapore
October 27, 2014
Return of the prodigal son
Table of Contents
1. BACKGROUND
p.5
2. BUSINESS DIVISIONS
p.6
3. MANAGEMENT
p.11
3. OUTLOOK
p.14
5. FINANCIALS
p.17
6. VALUATION AND RECOMMENDATION
p.21
7. RISKS
p.24
1. BACKGROUND
1.1 Growth through acquisitions
Established in 1959, MTQ specialises in engineering solutions for oilfield
equipment. The company repairs, manufactures and rents oilfield equipment
and tools. The stock has a long listing history, having listed on the SGX
SESDAQ in 1988 (subsequently upgraded to the mainboard in 1999). We
consider the company to be a well-run, family business churning steady
cashflows and profits, and one that has found its sweet spot among
multinational customers in a very fragmented and competitive equipment
supplier landscape. The company’s growth trajectory, however, took on a much
steeper turn in FY11 when Mr Kuah Boon Wee (son of current Chairman Mr
Kuah Kok Kim) was appointed CEO. Within three years, the company more
than doubled its profits to S$24m in FY14, achieving a 3-year CAGR of 31% for
FY11-14. Growth was fuelled by three acquisitions – Premier (Jul 2011),
Neptune Marine Services (Nov 2012) and Binder (Jan 2014) – in the span of
three years, which enabled MTQ to expand its services and geographic
presence.
Figure 1: Key milestones: In a span of three years, MTQ acquired three companies,
propelling an FY11-14 earnings CAGR of 31%
2014
Expanded into design and manufacturing of proprietary and custom-built pipe support and pipe
suspension through acquisition of Binder Group which has production facilities in Perth and Indonesia
2012
Acquisition of Neptune Marine Services Ltd located in Perth, Western Australia, which provides
engineering services with a focus in subsea and topside services and has operational presence in the
UK and Asia
Acquisition of Premier Group with repair and manufacture oilfield equipment as well as supply oilfield
equipment and tools manufactured by some of the leading global brands
Incorporated MTQ Oilfield Services W.L.L in Bahrain to provide services to the oil & gas industry in
Bahrain and Gulf states
Metalock (Singapore) Ltd (originally known as Metalock (Singapore) Pte Ltd) renamed to MTQ
Corporation Ltd and expanded into fuel injection business in Australia
Divestment of marine related business
Listed on SGX Mainboard and expanded into sales and repair of turbochargers business in Australia
2011
2009
2003
2002
1999
1988
1969
1959
Listed on SGX SESDAQ
Metalock (Singapore) Pte Ltd was incorporated as private ltd company in Singapore and subsequently
embarked on oilfield engineering, fabrication and equipment rental business
Commenced operations in Singapore as Metalock (Far East) Ltd to set up a branch specialising in
repairs of marine equipment
SOURCES: CIMB, COMPANY REPORTS
5
MTQ Corporation Ltd│Singapore
October 27, 2014
2. BUSINESS DIVISIONS
MTQ has three distinct business divisions 1) oilfield engineering, 2) subsea
services through 86.8%-owned Neptune Marine Services (NMS AU, Not Rated),
and 3) engine systems.
Figure 2: Revenue by segment
100%
S$92m
-
S$128m
-
Figure 3: EBITDA by segment
S$209m
S$17m
S$313m
100%
4
59
80%
-
55
80%
160
50
S$21m
Title:
Source:-
S$31m
S$43m
2
3
Please fill in the values above
to have them 12
entered in your report
5
4
60%
55
60%
49
40%
40%
13
18
23
27
74
20%
42
95
20%
105
0%
FY11
Oilfield engineering
FY12
FY13
Engine systems
0%
FY14
FY11
Neptune Marine
Oilfield engineering
SOURCES: CIMB, COMPANY REPORTS
FY12
FY13
Engine systems
FY14
Neptune Marine
SOURCES: CIMB, COMPANY REPORTS
2.1 Oilfield engineering: the core business
Oilfield engineering accounted for 33% of the group’s FY14 revenue (S$105m)
and 63% of EBITDA (S$27m). This division repairs, manufactures and rents
oilfield equipment and tools.
Oilfield equipment can be broadly categorised as 1) drilling equipment (drill
pipe, drill collar), 2) pressure & flow control equipment (blowout preventer,
valve, manifold), and 3) fishing and other equipment.
MTQ’s core competency lies in the repair and refurbishment of blowout
preventers (BOPs), which are safety devices (essentially large, high-pressure
valves) used to prevent the uncontrolled flow of liquids and gases during well
drilling operations. They are installed onboard drilling rigs such as jack-ups,
semis or drillships.
Generally, MTQ steps in when a drilling rig is undergoing its maintenance cycle.
Classed vessels are required to undergo a comprehensive special survey
including dry docking at each 5th anniversary of its delivery. In addition, an
intermediate survey is required to be completed at the midpoint of the 5-year
survey. A typical “bread-and-butter” job for MTQ would be the changing of
components of the BOPs. Such jobs could take about 3-4 weeks to complete and
could cost the customer US$200k-500k. A large contract would involve the
stripping and re-assembly of the BOP. This could take up to three months and
cost the customer US$6m-7m.
MTQ also undertakes contract manufacturing in compliance with American
Petroleum Institute Standards (API), fabrication of steel structures as well as
rental of BOPs.
Repair and contract manufacturing form the bulk of the division’s business. On
average, each contributes around 50% of the division’s revenue.
6
MTQ Corporation Ltd│Singapore
October 27, 2014
Figure 4: Apart from its core competency (repair & refurbishment of oil drilling
equipment), MTQ offers contract manufacturing, steel fabrication and rental of BOPs
Repair and refurbishment
▪ Ram and Annular Blowout Preventers (BOP)
▪ Assembly and testing of BOP stacks
▪ Gate valves
▪ Elevators
Contract manufacturing
▪ Choke and Kill Manifolds
▪ Wellheads
▪ Tree Blocks
▪ Flanges
▪ DSA
▪ Clamps
▪ Diverters
▪ Mud Cross
Fabrication
▪ Compressor Skids
▪ BOP Transporter Frames
▪ Scrubber Skids
▪ "U" Stamp Vessels
▪ Tree Frames
▪ Marine Risers
▪ Shipping Skids
Rental
▪ BOPs
▪
▪
▪
▪
▪
▪
▪
▪
Master Valve Body
Casing Heads
Riser Spools
Diverter Support Housing
Packer Housing
Test Flanges
Intermediate Flanges
Fluid Ends
SOURCES: CIMB, COMPANY REPORTS
Figure 5: Rebuilt and complete stack-up 183/4’’ 15,000 PSI
(pressure square inch) for a semi-submersible rig
Figure 6: Contract manufacturing of choke and kill manifolds
SOURCE: COMPANY
SOURCE: COMPANY
Figure 7: Fabrication works
Figure 8: Rental of annular blowout preventer
SOURCE: COMPANY
SOURCE: COMPANY
7
MTQ Corporation Ltd│Singapore
October 27, 2014
Premier group a star buy. Underpinned by the organic start-up of the
Bahrain facility and acquisition of Premier group in FY12, the oilfield
engineering division registered 35% revenue CAGR in FY11-14 and 27%
EBITDA CAGR.
Premier was a peripheral business that a US-listed company wanted to exit.
MTQ acquired 100% of Premier for S$27.3m cash in Jul 2011. The acquisition
enabled MTQ to increase its production capacity and expand its oilfield
equipment range. On a proforma basis, Premier accounted for 29% (S$40.1m)
of the group’s revenue and 47% (S$7.7m) of net profits in FY12. This implied
that Premier was transacted at 3.5x trailing P/E. Considering Premier’s
contributions to the group and its cheap acquisition cost, our view is that
Premier has turned out to be the star buy for MTQ.
Growing organically in Bahrain. The Bahrain facility is a greenfield
investment located in an industrial park, costing around US$20m. The facility
has been fully operational since late 2011, after around two years of
development. It represents the fruition of MTQ’s efforts to organically expand
its oilfield engineering division into the much larger Middle East market, which
is 2-3x that of Southeast Asia. Essentially, MTQ aims to replicate its Singapore
operations in the Middle East. In FY14, the Bahrain facility achieved S$8.5m
revenue (8% of the division’s turnover). The facility is continuing to ramp up its
operations but remains in red, albeit with losses narrowing.
Latest acquisition: Binder group. The division took in a new business unit
with the acquisition of 100% of Perth-based Binder group in Jan 2014 for
S$22m cash. The acquisition of Binder increased MTQ’s scope of oilfield
engineering solutions. Binder focuses on the pipe support product range,
specifically for LNG processing plants. On a proforma basis, Binder accounted
for 12% (S$40.5m) of the group’s revenue and 10% (S$2.7m) of net profits in
FY14. This implied that Binder was transacted at 8x trailing P/E.
Figure 9: Oilfield engineering by business units
Business unit
Pandan loop (original facility)
Premier
Binder
Bahrain
Oilfield engineering
division
Est. revenue (S$m)
30-50
20-40
20-40
>15
85-145
Est. gross margins
35-40%
35-40%
20-25%
Breakeven level at S$15m
33-38%
SOURCES: CIMB, COMPANY REPORTS
Facilities. Oilfield engineering services are carried out at five facilities –
Pandan Loop and Loyang in Singapore, Bahrain, Perth and Jakarta. MTQ is
headquartered in its incumbent facility in Pandan Loop. Pandan Loop contains
a fully equipped workshop with blasting and painting facilities. It also houses
equipment that is among the largest vertical and horizontal boring equipment
in Singapore. The facility in Loyang resulted from the acquisition of Premier. It
contains an AOS-certified machine workshop and is capable of complete
refurbishment, manufacturing and repair services. The facility in Bahrain is
API-certified and is almost three times bigger than the facility in Pandan Loop.
The Binder group has a facility in Perth, Australia. It also has a JV in Indonesia
which operates a manufacturing facility in Jakarta.
8
MTQ Corporation Ltd│Singapore
October 27, 2014
Figure 10: Oilfield engineering services are carried out at five facilities – Pandan
Loop and Loyang in Singapore, Bahrian, Perth and Jakarta
Pandan Loop (headquarters)
▪ Fully-equipped workshop with blasting and painting facilities
▪ Houses one of the largest vertical and horizontal boring equipment
▪ 14,000 sqm
Loyang (acquired through Premier group)
▪
▪
▪
▪
▪
▪
▪
Bahrain
Binder - Australia and Indonesia
API certified machine workshop
Capable of complete refurbishment and repair services
API certified and fully operational since late 2011
Over 40,000 sqm of production area
Design and manufacture to international standards
Total of 11,600 sqm facility in Australia
21,800 sqm facility in Indonesia
SOURCES: CIMB, COMPANY REPORTS
Customers. MTQ is the authorised working partner for some of the world’s
largest OEMs in drilling equipment such as GE oil & gas, Aker Solutions and
National Oilwell Varco as well as drilling contractors/rig owners such as
Transocean, Seadrill and Ensco.
Figure 11: MTQ is the authorised working partner for some of the world’s largest
OEMs in drilling equipment as well as drilling contractors/rig owners
SOURCES: COMPANY
2.2 Subsea services: rebuilding profitability
MTQ has a subsea arm through its 86.8% stake in Neptune Marine Services.
Listed on the ASX, Perth-based Neptune is a subsea specialist with a presence
in Australia and the UK. MTQ initially took a 12% equity stake in Neptune for
A$1om in FY11. It launched a general offer for Neptune in Nov 12 at
A$0.032/share. The offer closed in Apr 2013, with MTQ acquiring 86.8% of
Neptune for S$54.2m cash, valuing Neptune at an implied FY12 P/BV of 0.7x or
1x FY12x P/NTA (if we were to erase goodwill/tangibles from the books).
The group started consolidating Neptune’s contributions in 4Q13. CEO Mr
Kuah Boon Wee was appointed Chairman of Neptune in Jun 2013 while CFO
Dominic Siu was appointed non-executive director of Neptune.
In FY14, Neptune accounted for 51% of the group’s revenues (S$160m) and
28% of its EBITDA (S$12m). The company is asset-light and does not own
vessels to carry out its subsea jobs. It offers a variety f services including ROV
(remotely operated vehicles), survey, diving, IRM and engineering
manufacturing to oil companies such as Eni, Apache Energy as well as EPIC
(engineering procurement installation commissioning) companies such as
McDermott.
9
MTQ Corporation Ltd│Singapore
October 27, 2014
Neptune is rebuilding profitability following a period of significant losses from
asset and goodwill write-downs. The company went on an acquisition spree in
2008-10, which unfortunately coincided with an industry downturn. After
shedding its non-core assets (disposal of a subsea vessel) and exiting businesses
such as USA Diving and Australian fabrication over the last three years, the
leaner Neptune has returned to the black. With a majority shareholder at its
helm, MTQ is looking to enhance Neptune’s operational efficiency and further
unlock shareholder value.
Figure 13: Having right-sized its asset base, Neptune is in a net
cash position
Figure 12: Neptune returned to the black in FY14
(A$m)
(A$m)
250
200
(x)
Title:
329
Source:
350
189
300
136
150
118
290
15
Please fill in the values above to have them entered in your rep
136
116
20
17
250
100
10
7
5
200
50
21
5
1
FY09
FY10
FY11
(50)
FY12
0
146
150
-
106
FY14
(40)
-10
-7
(100)
-14
50
(150)
-15
FY09
Net income
FY10
FY11
Total assets
SOURCES: CIMB, BLOOMBERG
-15
-20
-
(143)
(200)
Revenue
-5
98
93
-6
100
FY12
fy13
FY14
Net debt to equity (RHS)
SOURCES: CIMB, BLOOMBERG
*DUE TO A NEW FINANCIAL END DATE OF MAR 31 (TO ALIGN WITH MTQ), FY13 RESULTS
IS NOT COMPARABLE
2.3 Engine systems: slower growth prospects
Through its wholly-owned subsidiary MTQ Engine Systems (Aust) Pty Ltd
(acquired in 1999), MTQ is the leading independent supplier of turbocharger
and fuel injection parts and services in Australia with a nationwide network,
representing reputable brands such as Bosch, IHI, Garrett, Denso and
Schwitzer. Engine systems made up 16% of the group’s revenues (S$49m) and
8% of its EBITDA (S$4m) in FY14. Weighed down by negative consumer
sentiment and the downturn in Australia’s resources sector, engine systems
recorded tepid sales growth in recent years.
Given its limited growth prospects, management has raised the possibility of
selling this division should a good offer come along.
10
MTQ Corporation Ltd│Singapore
October 27, 2014
3. MANAGEMENT
3.1 Return of the prodigal son
Having sat on the board of directors since 2006, Mr Kuah Boon Wee succeeded
his father, Chairman Mr Kuah Kok Kim as CEO on 1 Jul 2010. A UK-qualified
chartered accountant with a degree in mechanical engineering, he was
previously a senior management executive of PSA International Pte Ltd, having
served as CEO of PSA Singapore terminals. He had also served as CFO of ST
Engineering and held senior positions in the Jardine Matheson group.
Meanwhile, Chairman Mr Kuah Kok Kim was CEO of the group since 1997 to
2010. Mr Kuah has extensive business experience through his many years of
involvement in the marine logistics as well as oil & gas industry. He was also
engaged in the machine distribution and repair business before joining MTQ.
Since his appointment, CEO Boon Wee has refreshed and strengthened the
management team. CFO Dominic Siu joined MTQ in FY12, having worked with
Boon Wee in PSA International. Group Resources Director Mr Tan Chee Keong
joined the group in FY13 to strength its human resource management. Mr
Vincent Tan also joined MTQ in FY13. He has over 15 years of experience in
general and operations management in the oil & gas industry. Prior to joining
MTQ, Mr Tan was the Director of Sales, Pacific Rim of National Oilwell Varco’s
fibre glass systems division.
At its acquired subsidiaries, the group has retained talent and kept employee
turnover at a minimum. There have been no changes at the managing director
level for the various acquired subsidiaries – Premier, Neptune, Binder and
MTQ Systems (Aust).
The acquired business units are run somewhat autonomously, with
regular/monthly reviews conducted by the corporate office. Management does
not see much advantage in consolidating the various acquired operating
business brands into one single banner. The various brands offer different
services and have cultivated a certain degree of brand equity through the years.
Lastly, to align management with shareholder interest, MTQ established a
share plan for senior management in 2013.
11
MTQ Corporation Ltd│Singapore
October 27, 2014
Figure 14: To align management with shareholder interest, MTQ established a share
plan for senior management in 2013
SOURCES: COMPANY REPORTS
12
MTQ Corporation Ltd│Singapore
October 27, 2014
3.2 Shareholders
The four largest shareholders of MTQ collectively own about 59% of the
company, with 41% of the company in the hands of the public. Chairman Kuah
owns 24.5% of MTQ while CEO Kuah has a direct stake of 2.9%. Through
Maclean Investments, Mr Kurt Robert Malkolm Lindbald (the original founder
of MTQ) holds 17.6% of the company. His stake has been diluted through the
years. The third largest shareholder is the Ho family which owns 8.5% of the
company through Tai Tak Securities. The family’s main source of wealth is
through its UOB Bank shareholdings. The fourth largest shareholder is
SGX-listed Hwa Hong Corporation (an investment holding company) which
owns 5.4% of the company through Singapore Warehouse Company Pte Ltd.
The Ho family and Hwa Hong have one board representative each. Chairman
Kuah took control of MTQ in the late 1990s, following a boardroom tussle.
Figure 15: MTQ’s four largest shareholders own about 59% of the company
Kuah family , 27.4%
Public, 41.1%
Original founder through
Maclean Investments
Ltd, 17.6%
Hw a Hong through
Singapore Warehouse
Company Pte Ltd, 5.4%
Ho family through Tai
Tak Securities , 8.5%
SOURCES: CIMB, BLOOMBERG
13
MTQ Corporation Ltd│Singapore
October 27, 2014
4. OUTLOOK
4.1 Laying the foundations
Having made three acquisitions over the last three years, the group will be in
consolidation mode in the near term as it seeks to improve the performance of
the acquired businesses. In addition, MTQ intends to start reaping cost
synergies from consolidation of back-office functions as well as revenue
synergies from the cross-selling of its services. We believe that acquisitions will
take a breather and resume from FY16 onwards.
4.2 Softer Singapore due to slack in jack-up market
In Singapore, utilisation (as measured by man-hours) in the Pandan facility has
been firm but the Loyang facility has suffered a dip. Overall, the softer
utilisation is due to weaker macro prospects and some slackness in the jack-up
market.
Jack-up utilisation serves as a leading indicator for MTQ’s utilisation. Higher
utilisation implies higher activities and therefore, higher likelihood of wear and
tear, which would then require MTQ’s services.
Due to the growing availability of units, the Southeast Asian jack-up market has
softened a little vs. the robust rates at the beginning of the year. IHS Petrodata
estimates that there is currently a marketed supply of 68 jack-ups in the region,
62 of which are being contracted. This means that marketed utilisation stands
at 92%. However, with a significant influx of newbuilds coming onstream in
2015-16, utilisation is projected to decrease to 81% towards end-2015.
In addition, MTQ’s Singapore operations face a manpower crunch due to
restriction of foreign workers, which has curtailed growth opportunities. In our
view, MTQ’s Singapore operations have plateaued and could suffer a minor
contraction in FY15.
Figure 16: Southeast Asia jack-up supply & demand: Though the market is still healthy, utilisation is projected to decrease towards
end-2015 due to growing availability of rigs
Brunei
Indonesia
Malaysia
Philippines
Thailand
Vietnam
Others
Demand
Total supply
Marketed supply
Marketed utilisation
Marketed surplus
2014
Dec
3.0
14.6
17.0
0.0
11.0
16.7
0.0
62.3
70.0
68.0
92%
5.7
Jan
3.0
14.9
17.5
1.0
12.0
16.1
0.0
64.5
70.0
68.0
95%
3.5
Feb
3.0
15.0
18.7
1.0
12.0
16.0
0.0
65.7
71.0
70.0
94%
4.3
Mar
3.0
14.2
18.0
1.0
12.0
16.5
0.0
64.7
71.0
70.0
92%
5.3
Apr
3.0
15.0
18.4
1.0
12.0
15.3
0.0
64.7
71.0
70.0
92%
5.3
May
3.0
14.3
18.1
1.0
12.9
15.0
0.0
64.3
71.0
70.0
92%
5.7
Jun
3.0
15.0
18.0
1.0
13.0
14.9
0.0
64.9
71.0
70.0
93%
5.1
2015
Jul
5.0
17.0
19.0
1.0
13.0
15.0
0.0
70.0
73.0
72.0
97%
2.0
Aug
5.0
16.8
19.0
1.0
12.9
14.7
0.0
69.4
74.0
73.0
95%
3.6
Sep
5.0
16.0
18.0
1.0
12.0
14.7
0.0
66.7
74.0
73.0
91%
6.3
Oct
5.0
15.6
18.0
1.0
13.0
13.9
0.0
66.5
75.0
74.0
90%
7.5
Nov
5.0
15.0
18.5
1.0
11.1
12.0
1.0
63.6
76.0
75.0
85%
11.4
Dec
5.0
15.0
17.9
1.0
10.0
12.0
1.0
61.9
77.0
76.0
81%
14.1
Avg
4.0
15.3
18.3
1.0
12.2
14.7
0.2
65.7
72.8
71.8
92%
6.2
SOURCES: CIMB, IHS PETRODATA WORLD RIG FORECAST: SHORT TERM TRENDS
4.3 Bahrain facility holds huge potential
The Bahrain facility holds huge potential for the group. The Middle East is the
largest market for jack-up rigs. IHS Petrodata estimates that there is currently a
marketed supply of 145 jack-ups in the Middle East, 131 of which are being
contracted, resulting in a marketed utilisation of 90%. Jack-up demand in the
Middle East is expected to increase in the near term with an additional 10 units
being required by end-2015, achieving a marketed utilisation of 96% by
end-2015. Since 1Q11, demand in the region has grown in a linear fashion, by
about 12 units per year.
Given the rosy outlook, we think that the Bahrain facility will be able to capture
a share of the expanding demand and contribute more significantly to the
group’s profits in 2-3 years. The Bahrain facility achieved S$8.5m revenue in
FY14 and we expect it to increase to S$15m in FY15, which would be the
breakeven point for the facility. With further scaling up, we expect the Bahrain
14
MTQ Corporation Ltd│Singapore
October 27, 2014
facility to contribute positively to the bottomline from FY16 onwards and
become the group’s growth driver in the years ahead.
Figure 17: Middle East jack-up supply and demand: jack-up demand in the Middle East is expected to increase in the near term
with an additional 10 units being required by end-2015
Bahrain
Egypt
Iran
Oman
Qatar
Saudi Arabia
UAE
Others
Demand
Total supply
Marketed supply
Marketed utilisation
Marketed surplus
2014
Dec
0.0
11.0
26.6
0.0
14.0
54.0
25.0
0.0
130.6
149.0
145.0
90%
14.4
Jan
0.0
11.0
27.0
1.0
14.1
54.0
25.7
0.0
132.8
149.0
145.0
92%
12.2
Feb
0.0
11.0
28.0
2.0
14.0
54.0
28.0
0.0
137.0
150.0
146.0
94%
9.0
Mar
0.0
10.9
28.0
0.1
13.6
54.0
30.0
0.0
136.6
150.0
146.0
94%
9.4
Apr
0.0
10.0
28.0
1.0
14.0
54.0
31.0
0.0
138.0
150.0
146.0
95%
8.0
May
0.0
10.0
29.3
1.0
14.0
54.0
31.0
0.0
139.3
150.0
146.0
95%
6.7
Jun
0.0
10.5
29.0
1.0
14.0
55.0
31.0
0.0
140.5
150.0
146.0
96%
5.5
2015
Jul
0.0
10.0
28.8
1.0
14.0
56.0
31.4
0.0
141.2
150.0
146.0
97%
4.8
Aug
0.0
10.0
28.1
1.0
14.9
56.8
32.0
0.0
142.8
150.0
146.0
98%
3.2
Sep
0.0
10.0
28.0
1.0
14.0
57.3
32.0
0.0
142.3
150.0
146.0
97%
3.7
Oct
0.0
9.9
28.3
2.0
14.0
57.0
31.5
0.0
142.7
150.0
146.0
98%
3.3
Nov
0.0
10.0
28.0
2.0
15.0
56.8
32.0
0.0
143.8
150.0
146.0
98%
2.2
Dec
0.0
10.0
28.8
1.0
14.6
56.8
29.6
0.0
140.8
150.0
146.0
96%
5.2
Avg
0.0
10.3
28.3
1.2
14.2
55.5
30.4
0.0
139.9
150.0
146.0
96%
6.1
SOURCES: CIMB, IHS PETRODATA WORLD RIG FORECAST: SHORT TERM TRENDS
4.4 Neptune: demand from Icythys & Prelude LNG projects
With development of Inpex’s A$34bn-Ichthy LNG project in full swing (first gas
expected in end-2016) and the installation of Shell’s Prelude FLNG in 2015,
activities are set to be robust for Neptune in the next three years.
Already, Neptune has already secured a string of contracts to support the
Ichthys project. The company was recently awarded the design and fabrication
of specialist scour protection systems. It also successfully delivered concrete
mattresses for the project earlier in the year. Just this month, it has been
awarded a 40-month rig positioning and survey services contract. The services
are scheduled to start at end-2014 and generate revenue of US$3.5m.
In addition, Neptune has taken delivery of a newbuild dive support vessel, the
Bhagwan Dryden, built in collaboration with Australian-based Bhagwan Marine.
The vessel will commence a 5+3 year contract with Apache Energy. Accordingly,
Neptune will provide the dive and survey equipment while Bhagwan will
provide the vessel. The long-term contract is expected to contribute
meaningfully in 2HFY15 and provide a baseline of income from the rental of the
dive and survey equipment.
Cost-wise, MTQ intends to streamline Neptune’s office locations in Perth and
Singapore. Neptune has combined four of its current Perth locations into a
single facility which will result in rent savings and operating efficiencies. The
move will happen in Mar 2015 (beg-FY16) and we expect further margin
expansion.
On a last point, we note that Neptune’s sales in FY14 were propped up by an
ad-hoc vessel campaign in FY14. Neptune bareboat chartered a third-party dive
support vessel to carry out various scopes of subsea works such as diving, ROV
and IMR services. Though revenues from a vessel campaign are undoubtedly
higher, margins are crimped due to the third-party hire costs. Management
does not rule out chartering in a vessel if it is able to match the charter-in
period with a contract of similar length.
15
MTQ Corporation Ltd│Singapore
October 27, 2014
4.5 Scaling up Binder
Binder is facing a challenging FY15 due to a shortfall in activities. Management
revealed that contracts for Binder tend to be rather lumpy in nature. However,
MTQ is bullish on Binder’s longer-term prospects, with LNG demand in Asia
set to climb ~36% from 2013 to 2020, according to energy consulting company,
IHS CERA. The group sees opportunities in the Phase 3 expansion of the
Singapore LNG terminal as well as further capacity expansion in Indonesia and
Malaysia. We forecast a decline in Binder’s profits in FY15 but expect its
fortunes to reverse in FY16 with a pick-up in activities in the region.
Figure 18: SWOT analysis
Strengths
▪ Experienced & strong management team
▪ Excellent M&A track record
Opportunities
▪ Increasing market share in the Middle East through
the greenfield Bahrain facility
▪ Neptune to ride on increased demand from Ichthys
and Prelude LNG projects off Australia
▪ Positioning Binder for secular LNG demand in Asia
▪ Resilient business which is exposed to oil
companies' opex
▪ Pretty financial metrices: ~10% net profit margin, ~18- ▪ M&A opportunities: we expect M&As to resume from
20% ROEs, FCF-positive & net cash by FY16
FY16
Weaknesses
▪ Small businesses in a compeititive and fragmented
market
▪ Singapore operations have reached a matured stage
Threats
▪ Sustained lull in oil prices
▪ Tepid growth prospects for the engine systems
distribution business
▪ OEMs going in-house
▪ Softness in the drilling market
▪ Manpower crunch in Singapore
SOURCES: CIMB
16
MTQ Corporation Ltd│Singapore
October 27, 2014
5. FINANCIALS
5.1 FY14-17 core earnings CAGR of 14%
Underpinned by improving profitability for Neptune as well as the scaling up of
both the Bahrain facility and Binder, we expect MTQ to record 14% core
earnings CAGR for FY14-17. Nearer term, we project MTQ’s net profits to
decline by 8% yoy to S$22m in FY15 due to a softer Singapore and a shortfall in
activities in Binder. We expect net profit to rebound by 29% to S$29m in FY16.
Essentially, we expect earnings to accelerate in FY15-17 (2-year CAGR of 27%)
after bottoming out in FY15.
Our forecasts are based on the following segmental contributions:

Supported by the scaling up of the Bahrain facility and Binder, we expect
oilfield engineering to achieve revenue CAGR of 13% for FY14-17. We
expect the Singapore operations and Premier to report steady turnover of
S$90m p.a. Meanwhile, we project revenues for Bahrain to double from
S$15m in FY15 to S$30m in FY17. We expect Binder to generate
S$20m-30m revenue pa.

We expect oilfield engineering to achieve 11% EBITDA CAGR for FY14-17.
We expect EBITDA margins for oilfield engineering to expand from 21.7%
in FY15 to 24.6%. We forecast Bahrain to break even in FY15 on S$15m
revenues. Thereafter, we expect margins to pick up speed due to operating
leverage. We also expect Binder to contribute meaningfully from FY16
onwards.

On average, we expect Neptune to write S$130m-140m revenue p.a.
Neptune has historically achieved S$130m-160m revenue p.a. Ad-hoc
vessel campaign may push turnover to the higher end of the band.

Boosted by cost reductions, we expect Neptune to achieve 14% EBITDA
CAGR for FY14-17. We estimate Neptune’s EBITDA margins to widen from
10% in FY15 to 13% in FY17.

We expect contributions from the Engine system to be flattish.
Figure 19: Underpinned by Neptune’s improving profitability and scaling up of both
Bahrain facility and Binder, we expect MTQ to record 14% core earnings CAGR for
FY14-17
(S$m)
(S$m)
400
40
35
350
300
30
29
24
250
25
22
200
20
15
150
15
100
50
35
10
209
313
295
321
337
FY13A
FY14A
FY15F
FY16F
FY17F
-
5
-
Revenue
Core net profit
SOURCES: CIMB, COMPANY REPORTS
17
MTQ Corporation Ltd│Singapore
October 27, 2014
Figure 20: Segmental forecasts
Revenue (S$m)
Oilfield Engineering
Engine systems
Neptune
Group
FY13A
95
55
59
209
FY14A
105
49
160
313
FY15F
121
44
130
295
FY16F
136
45
140
321
FY17F Comments
151
47
140
337
Revenue (% yoy chg)
Oilfield Engineering
FY13A
28%
FY14A
11%
FY15F
15%
FY16F
12%
1%
NA
-11%
171%
-10%
-19%
3%
8%
63%
50%
-6%
9%
FY17F Comments
11% We expect growth to be underpinned by scaling up of the Bahrain facility and Binder. We
expect Singapore operations and Premier to write steady turnover of ~S$90m pa. Meanwhile,
we project revenues for Bahrain to double from S$15m in FY15 to S$30m in FY17. We expect
Binder to generate S$20-30m revenue pa
3% Expect tepid sales growth
0% On average, Neptune generates S$130-160m p.a. Ad-hoc vessel campaign may push turnover
to the higher-end of the band
5%
Revenue-mix(%)
Oilfield Engineering
Engine systems
Neptune
FY13A
45%
26%
28%
FY14A
33%
16%
51%
FY15F
41%
15%
44%
FY16F
42%
14%
44%
FY17F Comments
45% In terms of revenue contribution, oilfield engineering and Neptune are on equal footing
14%
42%
EBITDA (S$m)
Oilfield Engineering
Engine systems
Neptune
Group
FY13A
23
5
2
31
FY14A
27
4
12
43
FY15F
26
3
13
42
FY16F
32
3
15
50
FY17F
37
3
18
59
EBITDA margins (%)
Oilfield Engineering
FY13A
24.4%
FY14A
26.1%
FY15F
21.7%
FY16F
23.5%
FY17F Comments
24.6% We expect margins expansion from the Bahrain facility and Binder. We forecast Bahrain to
breakeven in FY15 on S$15m of revenues. Thereafter, we expect margins to pick up speed on
operating leverage. We also expect Binder to meaningfully contribute from FY16 onwards.
9.6%
3.7%
7.4%
7.7%
7.0%
10.0%
7.0%
11.0%
Engine systems
Neptune
Group
Engine systems
Neptune
14.7%
13.8%
14.3%
15.7%
7.0%
13.0% We expect costs reduction to boost Neptune's performance. For eg, Neptune is streamlining
four of its Perth offices into a single location
17.4%
EBITDA (% yoy chg)
Oilfield Engineering
Engine systems
Neptune
Group
FY13A
30%
10%
NA
65%
FY14A
18%
7%
459%
23%
FY15F
-4%
7%
6%
-2%
FY16F
22%
7%
18%
19%
FY17F
16%
7%
18%
16%
EBITDA-mix (%)
Oilfield Engineering
Engine systems
Neptune
FY13A
75%
17%
7%
FY14A
63%
8%
28%
FY15F
62%
7%
31%
FY16F
63%
6%
31%
FY17F
63% Oilfield engineering still contributes to around 2/3 of the group's earnings
6%
31%
Group
SOURCES: CIMB, COMPANY REPORTS
5.2 Margin expansion
MTQ historically enjoyed healthy gross margins of 35-40% and EBITDA
margins of 16-19%. Gross margins declined in FY14 to 33.1% due to a change in
sales mix with the consolidation of Neptune and Binder. However, gross
margins for the core Singapore operations and Premier have stayed at the
35-40% level. We expect gross margins to expand to 39.4% in FY17. We forecast
Bahrain’s margins to pick up speed from FY15 due to operating leverage while
Binder enjoys a turn of fortunes in FY16-17. We also expect further cost
reductions from Neptune as it streamlines its operations.
18
MTQ Corporation Ltd│Singapore
October 27, 2014
Figure 21: MTQ historically enjoyed healthy GM of 35-40% and 16-19% EBITDA
margin; margins to expand as Bahrain and Binder scale up and Neptune cuts cost
45%
41%
40%
37%
39%
38%
36%
35%
33%
35%
30%
25%
20%
19%
16%
17%
14%
14%
15%
16%
17%
10%
5%
0%
FY11A
FY12A
FY13A
Gross margins
FY14A
FY15F
FY16F
FY17F
EBITDA margins
SOURCES: CIMB, COMPANY REPORTS
5.3 2QFY15 review
MTQ is set to announce its 2QFY15 results on 30 Oct. We expect 2Q net profit
to come in at S$5.5m-6m, flat yoy. 1QFY15 core earnings dropped 31% yoy to
S$4.2m due to a softer Singapore and a quiet start for Binder. Revenue was also
lower due to the absence of a vessel campaign, which had enhanced revenue in
1QFY14.
5.4 Growing earnings on positive FCF stream
At end-FY14, MTQ had a net gearing of 0.2x, mainly due to increased
borrowings to fund the acquisition of Neptune. However, we expect the group
to quickly turn to net cash by FY16. MTQ has a highly cash-generative business.
For FY11-14, it has, on average, generated operating cash flow 1.6x that of its
net profit. Barring future acquisitions, we estimate that the group will incur
minimal maintenance capex of S$12m p.a. This also implies that MTQ is highly
FCF-generative. The point is not lost on us that most high-growth companies
are propelled by similarly high expansionary capex, which translates into
negative FCF. However, MTQ’s growth is one which is driven by a
“back-to-basics” via improvement of the target’s performance (in this instance,
Neptune and Binder) and growing market share through the organic
development of the greenfield Bahrain facility.
19
MTQ Corporation Ltd│Singapore
October 27, 2014
Figure 22: MTQ is growing its earnings on the back of a positive FCF stream
(S$m)
30%
50
40
20%
30
20
10%
10
FY13A
FY14A
FY15F
FY16F
FY17F
0%
(10)
(20)
-10%
(30)
(40)
-20%
(50)
Operating cash flow
Maintenance capex
FCF
Net gearing (RHS)
Expansionary capex, net
SOURCES: CIMB, COMPANY REPORTS
5.5 Increasing dividends
MTQ has been paying increasing dividends through the years. Dividends paid
have grown at a 16% CAGR for FY11-14. While the group does not have a formal
dividend policy, we expect dividends paid out to be steady and sustainable.
Over the past four years, the payout has ranged from 22% to 33%. We are
forecasting a payout of low- to mid-20s, which translates into a forward
dividend yield of 3-4%. Note that shareholders can opt to receive the dividends
in scrip.
Figure 23: Dividends paid has grown at 16% CAGR from FY11-14. We expect
dividends to be steady and sustainable and forecast 3-4% dividend yields
(S$m)
9.0
35%
33%
8.0
30%
28%
7.0
25%
25%
6.0
25%
24%
23%
21%
5.0
20%
4.0
15%
3.0
10%
2.0
1.0
3.5
3.6
4.3
FY11A
FY12A
FY13A
5.6
5.6
6.9
7.6
FY16F
FY17F
0.0
5%
0%
FY14A
Gross dividend declared
FY15F
Payout ratio (RHS)
SOURCES: CIMB, COMPANY REPORTS
20
MTQ Corporation Ltd│Singapore
October 27, 2014
6. VALUATION AND RECOMMENDATION
6.1 CY15 EV/EBITDA at 40% discount to peers
On the back of softer 1QFY15 results and oil price jitters, the stock has fallen by
some 30% since end-Jul. In terms of EV/EBITDA, MTQ is trading at 3.9x CY15
vs. peers’ average of 6.3x (~40% discount). In terms of price multiples, the
stock is trading at 6.8x CY15 P/E and 1.3x CY14 P/BV. Meanwhile, its oil
equipment peers, excluding Keppel-backed Dyna-Mac and KS Energy, are
trading at a similar valuation of 6.5x CY15 P/E.
We observed that some of MTQ’s peers have similarly diversified from their
core oilfield equipment business. For example, Baker Technology, which
supplies jack-up legs, has branched into the fabrication of liftboats. KS Energy,
which is a diversified supplier of equipment and components for the offshore
industry, has refocused its efforts on its drilling rig division in recent years.
Others like Viking Offshore and Mencast have horizontally diversified in a bid
to become integrated one-stop service providers of oilfield equipment. Viking
Offshore is also taking equity stakes in newbuild jack-up rigs.
Figure 24: Singapore's listed oilfield-equipment service providers
Company
Baker Technology
Service offerings
▪ Supplies deck equipment such as offshore pedestal cranes & anchor winches.
▪ Core competency lies in the supply of jack-up legs
▪ Turnkey project management of FPSO topside modules construction
▪ Fabricates compressors & topside processing equipment
▪ Main business lies in construction & maintenance of downstream plants in Jurong
Island, Singapore
Dyna-Mac
Hiap Seng Engineering
▪ Fabricates works of sections or components of drilling rigs & drillships
▪ Installs offshore production modules and systems
▪ Does afloat repairs, maintenance and refurbishment of offshore rigs, platforms &
vessels
▪ Integrated one-stop oilfield equipment service provider
▪ Supplies a wide-variety of equipment including instrumentation and process flow
equipment, consumable products, carbon and stainless steel pipes & structural steel
plates
▪ Has re-focused its efforts on its drilling division in recent years
▪ Complete MRO (Maintenance, Repair & Overhaul) solutions provider for the offshore
& maritime sector
▪ Established leader in the manufacture and repair of propellers and sterngear
equipment
▪ Has augmented its core competency with horizontal-acquisitions along the productchain, making 8 acquisitions since its IPO in 2008
▪ Automation systems integration solutions provider for offshore vessels
▪ Design and fabrication of process modules and equipment for offshore platforms &
FPSOs
▪ Provider of heating, ventilation and air-conditioning systems as well as refrigeration
systems (key pillar for the group), hydraulic winches & power packs as well as
telecommunication systems
▪ Vertical diversification through investment in newbuild jack-up rigs
▪ Diesel engine, propulsion and power generating solutions provider for the offshore &
marine sector
Kim Heng Offshore &
Marine
KS Energy
Mencast
Nordic group
Technics Oil & Gas
Viking Offshore
XMH
SOURCES: CIMB, COMPANY REPORTS
Figure 25: Peers Comparison
Company
Bloomberg
Ticker
Dyna-Mac Holdings Ltd
DMHL SP
Kim Heng Offshore & Marine Hol KHOM SP
KS Energy Ltd
KST SP
Mencast Holdings Ltd
MCAST SP
MTQ Corporation Ltd
MTQ SP
All simple average (ex. MTQ)
Recom.
Price
(lcl curr)
Target
Price
(lcl curr)
Market
Cap
(US$ m)
NR
NR
NR
NR
Add
0.39
0.21
0.45
0.44
1.20
na
na
na
na
1.56
300
114
185
123
143
FD Core P/E (x) 2-year EPS
CY2014 CY2015 CAGR (%)
13.3
7.6
na
8.3
8.1
9.7
9.4
6.4
40.9
6.5
6.8
15.8
21.0%
1.6%
1429.8%
18.9%
7.6%
367.8%
P/BV (x)
CY2014
Recurring
ROE (%)
CY2014
Dividend
Yield (%)
CY2014
1.93
1.32
na
na
1.28
1.62
15.4%
21.0%
13.8%
17.6%
16.9%
16.9%
5.2%
2.4%
na
3.6%
3.0%
3.8%
SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG
21
MTQ Corporation Ltd│Singapore
October 27, 2014
6.2 Initiate with Add and target price of S$1.56
We initiate coverage with an Add rating and a target price of S$1.56, based on a
blend of 7x CY16 P/E and 1.5x CY15 P/BV. Since the entry of a capable and
experienced management team in FY11, MTQ has achieved 31% core earnings
CAGR for FY11-14. Growth has been propelled by a series of earnings- and
value-accretive acquisitions over the last three years. For example, MTQ
acquired the Premier group at 3.5x trailing P/E and acquired Neptune at 1x
P/NTA.
While the businesses of MTQ are relatively small and compete in a very
fragmented industry, the group enjoys healthy gross margins of 35-40% and
EBITDA margins of 16-19%. The business is also highly cash-generative. For
FY11-14, its operating cash flow was, on average, 1.6x net profit. Hence, we
expect the group to turn to net cash by FY16 (from net gearing of 0.2x in FY14).
Meanwhile, we forecast MTQ to achieve 14% core earnings CAGR for FY14-17
as it consolidates its acquired businesses. Further accretive-acquisitions in the
mid-term could drive earnings and value. For now, we expect growth to be
underpinned by improving profitability from Neptune as well as the scaling up
of both the Bahrain facility and Binder.
Backed by a solid management team and organic growth on a stream of positive
FCF, investors can now Add MTQ at 3.7x CY15 EV/EBITDA, 40% discount to
peers’ average of 6.3x. On a P/BV basis, the stock also looks undervalued, at
1.3x CY14 P/BV vs. a forward ROE of 18%, while offering a forward dividend
yield of 3-4%. We envision the stock to potentially reach S$500m market cap in
the years to come and believe that this is one for small-cap specialist funds.
Potential
catalysts
include
stronger-than-expected
earnings
and
accretive-acquisitions.
Figure 26: Blended P/E & P/BV valuation
Method
Per share
items (S cts)
Multiple Share
Justification
peg
price (S$)
FD CY16 P/E
FD CY15 P/BV
22.15
103.99
7.0
1.5
1.55
1.56
Average
Implied CY16 P/E (x)
Implied CY15 P/BV (x)
1 s.d above its 5-year mean of 6x
Justified P/BV multiple based on forward ROE of
18%
1.56
7.0
1.5
SOURCES: CIMB
Figure 27: MTQ’s 12-month rolling forward P/E
Figure 28: MTQ’s rolling P/BV
2.1 Title:
13.0
Source:
12.0
1.9
Please fill in the values above to have them entered in your report
11.0
1.7
10.0
9.0
1.5
8.0
+1SD: 7.1x
7.0
1.3 (B$2250:$B$2333)
6.0
#VALUE!
1.1 +1SD: 7.1x
5-yr Ave (09-13): 5.8x
+1SD: 1.3x
5-yr Ave (09-13): 1.1x
5.0
3.0
Jan 09
Jan 10
Jan 11
-1SD: 0.9x
0.9
-1SD: 4.6x
4.0
Jan 12
Jan 13
0.7
Jan 09
Jan 14
12-mth Fwd Rolling FD Core P/E (x)
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Rolling P/BV (x)
SOURCES: CIMB, BLOOMBERG
22
SOURCES: CIMB, BLOOMBERG
MTQ Corporation Ltd│Singapore
October 27, 2014
Lastly, we cross-check our primary valuation methodology (blended P/E &
P/BV) with a sum-of-parts (SOP) approach, valuing MTQ’s distinct divisions
separately. We use DCF (WACC: 9.5%, LTG: 2%) to value the highly
cash-generative oilfield engineering business. We simply peg Neptune at its
market value while using book value for the engine systems business. The
intrinsic-valuation approach suggests that the highly cash-generative oilfield
engineering business is very much under-appreciated and that the market has
also priced in a wide discount for Neptune.
Figure 29: SOP valuation shows that the oilfield engineering business is very much
under-appreciated and the market has priced in a wide discount for Neptune
Business division
Oilfield Engineering
86.8% owned-Neptune
Engine system
MTQ group
Equity valuation (S$m)
215.0
85.2
24.4
324.6
Equity (S$/share)
1.41
0.56
0.16
2.13
Valuation method
DCF
Market value
Book value
SOURCES: CIMB, COMPANY REPORTS
Figure 30: DCF of oilfield engineering
EBITDA
less tax
Add depn shield
less investment in fixed capital
less net increase in working capital
FCFF
PV of FCFF
Terminal value
EV
less debt
Equity value
no. of shares (m)
Equity valuation of Oilfield engineering business
2015
27.3
4.9
1.2
8.2
1.4
14.0
64.9
164.6
229.6
14.6
215.0
152.4
1.41
2016
31.4
5.7
1.4
9.4
1.6
16.2
2017
34.5
6.2
1.6
10.4
1.7
17.8
2018
36.2
6.5
1.6
10.9
1.8
18.7
2019
37.0
6.7
1.7
11.1
1.8
19.0
Assumptions
LTG: 2%
Discount rate: 9.5%
SOURCES: CIMB
23
MTQ Corporation Ltd│Singapore
October 27, 2014
7. RISKS
7.1 Lower oil price environment
A sustained drop in oil prices would slow down oil companies’ E&P programme.
In turn, rig operators could attempt to delay periodic maintenance cycles and
push back discretionary maintenance, adversely affecting MTQ.
7.2 Softer jack-up market
The global jack-up market is anticipated to be somewhat softer come 2015-16,
with ~150 deliveries anticipated through 2017, forming ~30% of the global rig
count. Around 63 jack-ups are due to be delivered in 2015 and another 47 for
2016. A drop in utilisation would impact MTQ’s repair activities as
requirements for regular repairs would dissipate.
One mitigating factor is that half of these newbuilds are built from Chinese
yards and there could be some delivery delays, hence, potentially avoiding a
severe oversupplied situation.
7.3 OEMs going in-house
Several of the major OEMs have expanded their presence in Southeast Asia and
are going in-house. This could adversely affect MTQ’s Singapore operations.
For example, US-based oilfield equipment giants such as Halliburton and
Cameron have completed their plans to develop its own after-market facility in
Singapore to better service its customers. Meanwhile, another US-based oilfield
equipment giant, FMC Technologies has shifted part of its operations from
Singapore to Kuala Lumpur, Malaysia. To remain relevant, the company is
dedicated to offering a customised and personalised service proposition to
these multinational OEMs.
7.4 Acquisition risks
MTQ’s growth in the last three years has been underpinned by earnings- and
value-accretive acquisitions. However, a misjudged acquisition could easily
wipe out its profits. Failure to integrate could also crush some of the synergies
the company expects when it makes the deal.
7.5 Manpower crunch
Retaining and developing manpower is a perennial issue facing all companies,
but particularly in the manufacturing sector in which MTQ operates. The
restriction of growth of foreign workers in Singapore has curtailed growth
opportunities as the group faces a manpower crunch. To mitigate this, the
company has invested in new equipment to boost productivity and also ensured
that it is able to successfully retain existing staff and attract new employees.
Though manpower in Singapore has remained stagnant, the company has
managed to grow revenue.
In Bahrain, MTQ has grown its staff strength to 130. It faces the challenge of
recruiting adequate supervisory staff and developing the local team so that they
can maximise the output of the facility. For now, the company is augmenting
the local team with overseas recruitment for experienced and managerial
positions.
24
MTQ Corporation Ltd│Singapore
October 27, 2014
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and/or any other derivatives) in the following company or companies covered or recommended in this report:
(a) ASL Marine, Bumi Armada, Daewoo Shipbuilding & Marine, Ezion Holdings, Ezra Holdings, Hyundai Heavy Industries, Hyundai Mipo
Dockyard, Keppel Corporation, Malaysia Marine & Heavy Eng, Nam Cheong, Perisai Petroleum, Samsung Heavy Industries, SapuraKencana
Petroleum, Sembcorp Industries, Sembcorp Marine, SIA Engineering, UMW Oil & Gas, Yangzijiang Shipbuilding
(ii) As of October 27, 2014, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to
shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:
(a) 25
MTQ Corporation Ltd│Singapore
October 27, 2014
The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB
may or may not issue regular reports on the subject matter of this report at any frequency and may cease to do so or change the periodicity of
reports at any time. CIMB is under no obligation to update this report in the event of a material change to the information contained in this report.
This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any
guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such
information and opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner
whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any
reliance thereon or usage thereof.
This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’
clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer,
recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof.
Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual
investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business,
financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report.
The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.
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to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments
and it is not intended as a solicitation for the purchase of any financial instrument.
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activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB
Securities Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial
Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such
recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the
basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any
means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written
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of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is
directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the
securities laws of Hong Kong).
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provisions of Regulation 4 (g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CIMB India is not required
to seek registration with SEBI as an Investment Adviser.
The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other
activities of CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm
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investment banking or capital markets transactions performed or proposed to be performed by CIMB India or its affiliates.
Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are
our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the
Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update
its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the
basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any
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Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”). The views and opinions in this research report are
our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the
Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update
its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the
basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any
26
MTQ Corporation Ltd│Singapore
October 27, 2014
means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written
consent of CIMB.
New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the
course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978.
Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). Recipients of this report are to contact CIMBR in
Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as
of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial
Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its
opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert
investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise
curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this
material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or
indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR.
As of October 27, 2014, CIMBR does not have a proprietary position in the recommended securities in this report.
South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed
as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea.
The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be
considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of
financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument.
This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated,
stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for
any purpose without the prior written consent of CIMB Korea.
Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The
distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments
described herein and may not be forwarded to the public in Sweden.
Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have
not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and
regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or
a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the
Financial Supervisory Commission of the Republic of China.
Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this
research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or
the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no
obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the
basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any
means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written
consent of CIMBS.
CIMB Securities (Thailand) Co., Ltd. may act or acts as Market Maker and issuer including offering of Derivative Warrants Underlying securities
of the following securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making
investment decisions.
AAV, ADVANC, AMATA, ANAN, AOT, AP, ASP, BANPU, BAY, BBL, BCH, BCP, BEC, BECL, BGH, BH, BIGC, BJC, BJCHI, BLA, BLAND, BMCL,
BTS, CENTEL, CK, CPALL, CPF, CPN, DCC, DELTA, DEMCO, DTAC, EARTH, EGCO, ERW, ESSO, GFPT, GLOBAL, GLOW, GUNKUL,
HEMRAJ, HMPRO, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KCE, KKP, KTB, KTC, LH, LOXLEY, LPN, M, MAJOR, MC, MCOT, MEGA, MINT,
NOK, NYT, PS, PSL, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, RS, SAMART, SCB, SCC, SCCC, SIRI, SPALI, SPCG, SRICHA, STA, STEC,
STPI, SVI, TASCO, TCAP, TFD, THAI, THCOM, THRE, THREL, TICON, TISCO, TMB, TOP, TPIPL, TTA, TTCL, TTW, TUF, UMI, UV, VGI, TRUE,
WHA.
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the
policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the
Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public
investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may
be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.
Score Range:
Description:
90 - 100
Excellent
80 - 89
Very Good
70 - 79
Good
Below 70 or
N/A
No Survey Result
United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing
authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by,
deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report
27
MTQ Corporation Ltd│Singapore
October 27, 2014
is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than
the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to
lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory
of the United Arab Emirates.
United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK)
Limited (“CIMB UK”). CIMB UK is authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge,
London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are
persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”); (c) are
persons falling within Article 49 (2) (a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the
United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be
communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at
relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which
this report relates is available only to relevant persons and will be engaged in only with relevant persons.
Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does
not constitute independent "investment research" under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any
such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of
investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research.
United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer
and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand)
Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons
who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only
for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative
securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional
Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a
recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB
Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order
in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Distribution of stock ratings and investment banking clients for quarter ended on 30 September 2014
1552 companies under coverage for quarter ended on 30 September 2014
Rating Distribution (%)
Investment Banking clients (%)
Add
54.9%
5.0%
Hold
29.5%
2.3%
Reduce
15.6%
1.0%
Spitzer Chart for stock being researched ( 2 year data )
MTQ Corporation Ltd (MTQ SP)
Price Close
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
Oct-12
Feb-13
Jul-13
Nov-13
tzerKR_KRSpitzer
28
Mar-14
Jul-14
MTQ Corporation Ltd│Singapore
October 27, 2014
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
AAV - Good, ADVANC - Excellent, AMATA - Very Good, ANAN – Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL Excellent, BCH – Good, BCP - Excellent, BEAUTY – Good, BEC - Very Good, BECL - Excellent, BGH - not available, BH - Very Good, BIGC - Very Good,
BJC – Very Good, BMCL - Very Good, BTS - Excellent, CCET – Very Good, CENTEL – Very Good, CHG – not available, CK - Excellent, CPALL - Very Good,
CPF - Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EA - Good, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Very
Good, GRAMMY - Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD – Very Good, IVL Excellent, JAS – Very Good, KAMART – not available, KBANK - Excellent, KCE - Very Good, KKP – Excellent, KTB - Excellent, LH - Very Good, LPN Excellent, M - not available, MAJOR - Very Good, MAKRO – Very Good, MC - not available, MCOT - Excellent, MEGA – not available, MINT - Excellent, OFM –
Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS
- Excellent, SAMART - Excellent, SAPPE - not available, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIM - Excellent, SIRI - Very
Good, SPALI - Excellent, STA - Good, STEC - Very Good, SVI – Excellent, TASCO – Very Good, TCAP - Excellent, THAI - Excellent, THCOM – Excellent,
TICON – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW - Excellent, TUF - Very Good, VGI – Excellent, WORK –
Good.
CIMB Recommendation Framework
Stock Ratings
Definition:
Add
The stock’s total return is expected to exceed 10% over the next 12 months.
Hold
The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce
The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward
net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings
Overweight
Neutral
Underweight
Definition:
An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings
Overweight
Neutral
Underweight
Definition:
An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand,
Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were
based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months.
Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy:
expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on
Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or
more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total
returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected
negative total returns of 10% or more over the next 3 months.
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