WITH THE drastic contraction in global trade and production, demand for crude oil has slumped, casting a pall on the earnings-viability of oil-related companies.
Yet, oil prices have been firming of late, finding its support around the US$30-40 a barrel range as OPEC and other leading oil producing countries initiated production cuts.
So what next for companies operating in the oil and gas sector?
While we profess to be unable to predict the price direction of the black gold, we do know a good company operating in the oil and gas sector and priced at trough valuation when we see one.
MTQ Corp, a specialist engineering company involved in oilfield equipment repair and rental operations was recently trading at S$0.50 or a P/E ratio of 1.2, comparatively lower than other peers like Technics Oil and Gas or Swiber Holdings.
Growth continued to be robust in the latest financial statement, eschewing significant signs of a downturn.
For the first six months ended 30 September 2008, MTQ booked a 13.4% increase in revenue.
Earnings, however fell 79% to S$7 million due to absence of the divestment gain that was recorded in the previous corresponding period.
The outfield engineering division continued to be the main contributor to top and bottom lines growth, but the engine systems operations ran into headwinds with flat revenue growth.
The encouraging 1H09 results were preceded by an unprecedented run in FY08. Revenue surged 24.7% to S$84.7m.
Growth in top line was brought down to the bottom line with profit swelling 704% year-on-year to a record S$37.9m, boosted by the divestment gain of S$40.8m from the unloading of shares in RCR Tomlinson.
Unlocking The Middle East
Despite the economic turmoil, MTQ continues to advance boldly into new strategic areas.
As MTQ operates in the oil and gas sector, getting a foothold in the Middle East, the reigning oil producing region in the world, is probably a must.
MTQ, through its subsidiary, has embarked on a plan to construct a US$20m facility in Bahrain International Park to provide engineering, repair and refurbishment services.
According to Kuah, “Funding for the new facility will be through external and internal sources.”
Cash balance of S$20.7m as of 30 September 2008, will provide some of the initial funding requirement.
Geographically close to Saudi Arabia, the largest oil producer globally, MTQ’s new facility will strengthen its presence in the Middle East market and allow the company to service its customers across the globe.
Also of note is the company’s share buybacks. In 1H09, MTQ had purchased a total of 3.2m shares from the market as part of its policy to enhance shareholders’ value.
This article was recently published on Shares Investment and is republished here as part of a collaboration with NextInsight.
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