MTQ CORPORATION'S stock price is at a year-low of 63.5 cents after it posted a net loss of S$2.3 million for 1QFY2016 due to weaker demand for oilfield engineering services in Singapore, coupled with the impact of a weaker Australian dollar.
Group CEO Kuah Boon Wee. NextInsight file photo“This is a challenging environment but I am confident of what we are doing. We just have to wait for better markets,” said Group CEO Kuah Boon Wee during a teleconference with analysts yesterday (Wed).
The Group’s balance sheet remains strong with S$41.2 million in cash and net gearing of 11.4%. Its borrowings were reduced from S$60.4 million as at 30 June 2014 to S$58.5 million as at 30 June 2015.
“The number one priority now is to look for revenue growth opportunities,” added Mr Kuah.
Revenue had declined by 22% to S$610.0 million. Gross margin declined to 26%, compared to 34% a year ago.
“Neptune Marine Services has expanded on its revenue opportunities in the Middle East. We are also looking to expand in downstream maintenance work, an area that is benefiting from lower feed prices,” he said.
Below is a summary of questions raised at the teleconference, and the replies provided by Mr Kuah and CFO Dominic Siu.
|
Q: Why was there a sharp decline in gross margin? Kuah Boon Wee: There was margin pressure because of competitive pricing. Most of the decline is related to the Singapore side of the business. Binder’s margins have improved because of lower feed prices and relatively unchanged product prices. Q: Will the competitive pricing pressure affect your second and third quarter? Kuah Boon Wee: It is not logical to assume that things will bounce back in the short term. If you are cautious about winning work in an environment of low business activity, you have to price yourself sensibly and make sure that you can win work at margins that make sense. Q: What is the revenue breakdown?
Dominic Siu: Group revenue was about S$60 million and Neptune generated slightly more than half of that. The oilfield engineering division (Bahrain, Binder and Singapore) generated about a quarter. The engine systems division generated slightly less than 20%. Kuah Boon Wee: Bahrain’s top line has grown, reflecting resilient demand in the region. However, we are facing yield pressures. Revenue in Aussie dollars from engine systems and Neptune remained unchanged, but we booked a currency translation loss of about 10% arising from the AUD-SGD depreciation. Most of the revenue decline was from lower business volume in the oilfield engineering business from Singapore. There was significant year-on-year reduction in 1QFY2016 revenue from the Singapore side of the business. |
|
Q: How will costs be cut? Kuah Boon Wee: Natural attrition of headcount (currently 1,200) will make up the bulk of cost cutting. We will not replace personnel whose contracts end, as well as those who resign or retire.
Q: How does your order book compare with a quarter ago? Kuah Boon Wee: Numbers started coming down in 3Q and 4QFY2015. 1QFY2016 continues this trend. Q: Are you likely to incur a loss in FY2016? Dominic Siu: The revenue trend is still downwards. There are many external factors at play, so it is difficult to say whether we can recover from the loss in 1QFY2016. While cash generation is lower than previous quarters because of the lower activity level, our balance sheet is very healthy. I believe we can weather the storm. Kuah Boon Wee: Unless revenue picks up, we are looking at a loss for FY2016. New capital expenditure for the oil & gas market is quite weak at the moment. I don’t anticipate an improvement in this aspect. At this juncture, we are not promising a dividend for FY2016. Q: There was a S$4 million purchase of Plant, Property & Equipment in 1QFY2016. Why was there need for such a purchase under the current environment? Kuah Boon Wee: The purchases relate to remotely operated vehicles and moulds that we mentioned last year. It takes time for these transactions to flow into the books. We have no plans for capital expenditure in terms of equipment and M&A. You will see a lower capital expenditure trend moving forward. We have an instalment to pay for the Binder M&A. Other than that, we only have maintenance capex. Q: What is the status for your share buyback? Kuah Boon Wee: We bought MTQ shares to issue to staff under our employee share plan. The timing for share buyback is right as we have cash and our shares are trading below net asset value, something common for the sector currently. |
