MTQ Corporation Ltd - CIMB Research 2015-10-30: Singapore operations still wheezing

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MTQ CORPORATION LIMITED M05.SI 

MTQ Corporation Ltd - Singapore operations still wheezing 

• 2QFY16 core net loss of S$0.6m (1H16: S$2.7m loss) was broadly in line with consensus and our expectations. 
• Singapore operations to remain weak. 2H results unlikely to make up for 1H net loss. Expect larger loss of S$2.9m for FY16 (previously: S$0.3m loss). 
• As expected, no interim dividend was declared. Expect a DPS of 2 Scts for FY16 (FY15: 4 Scts). Given the lack of catalysts, we maintain our Hold call. 

Net loss narrowed qoq due to cost rationalisation 

• Dragged by weaker Singapore operations, MTQ posted a core net loss of S$0.6m (1Q16: S$2.1m loss). 
• Its net loss narrowed qoq mainly due to staff reduction. There was some retrenchment in its overseas operations, while the company did not replace employee attrition at its Singapore operations. 
• Gross margin maintained at 26% The group's 2Q16 gross margin came in at 26%, same as 1Q16's. However, 1H16 margins fell by 7.4% pts yoy, reflecting the tough operating environment and market pressures. 
• With a net gearing of 0.1x, the group is financially robust to endure the downturn. 

Singapore operations weaker; Bahrain still decent… 

• By segments, Singapore operations were weaker qoq and yoy, indicative of the poor jack-up utilisation in Southeast Asia. Bahrain continued to see a healthy level of activities and generated slightly higher revenue yoy. 
• Management is sanguine that Bahrain is able to achieve c.S$15m revenue run-rate, similar to FY15. 

…elsewhere, Binder’s loss slightly narrowed; Australia hampered by translation 

• Binder recorded a smaller loss qoq, though higher on a yoy basis. Australian operations were somewhat stable but suffered from translation effects (due to the weaker A$). 
• We foresee that the group’s Singapore operations will remain weak in 2H and that the group will, at best, break even in 2H. We now project a larger loss of S$2.9m for FY16 (S$0.3m previously). 

No interim dividend, as expected 

• To be financially prudent, the group has not declared an interim dividend. 
• We project a DPS of 2 Scts for FY16 (FY15: 4 Scts). 
• With the lack of catalysts, we maintain our Hold call with a lower target price (S$0.59), now based on 0.9x P/BV, 1 s.d. below its 5-year mean (1x P/BV previously).

YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2015-10-30

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.59 Down 0.69