MTQ Corporation

[Kelvin]

i had to top up too...due to shares number not in multiples of 4.

[pianist]

welcome to the party...if what dydx predicted turn out to be a reality, my targeted lucky no 168 seems like an easy hurdle to clear

[Musicwhiz]

Perhaps everyone is getting too excited.

One quarter of profitability at NMS does not say much - the business is order-book based so needs more time to demonstrate consistency and that it has a viable business running. I would not be too quick to project profits for NMS based on 1 quarter of good results.

Also, the ramp-up at Bahrain is still on-going; and costs will still dominate compared to revenues. Not much was said of this.

PSL and Pemac should be contributing positively but the breakdown between PSL/Pemac contribution and "organic growth" was not specified.

The Balance Sheet now looks very heavy with debt, most of it long-term though; and I would expect significant increases in finance costs moving forward. FCF generation was also -ve for the 4Q 2013 due to a large increase in Trade Receivables, which was worrying. Would cash collecting be a problem moving forward?

So aside from the headline "good news", I have many concerns about the business which I need to address with Management.

[psolhawk]

I find it peculiar as to why the management decided to issue bonus shares instead of declaring a special dividend. Is it cheaper to do it this way? Seems like the main motivation is to encourage more trading/short-term higher share price.

A management that issues bonus shares kind of fail a certain criterion in my assessment of the quality of management.

[Musicwhiz]

I find it peculiar as to why the management decided to issue bonus shares instead of declaring a special dividend. Is it cheaper to do it this way? Seems like the main motivation is to encourage more trading/short-term higher share price.

A management that issues bonus shares kind of fail a certain criterion in my assessment of the quality of management.

I agree with you to a certain extent. Bonus shares or share splits have the same effect - increasing the free float and ensuring more volume is transacted. It does not, however, affect the total value of the Company.

Look at it this way - if a special dividend was declared and many shareholders choose cash, this is additional cash the Company has to fork out. Whereas in this case, perhaps they are hoping shareholders take up scrip along with the bonus, so as to boost their shareholdings "twice". I agree it is a cosmetic effect, but the cash outlay would be higher than last year nonetheless.

And oh yes, I am sure the major shareholders will choose scrip. They will need a lot of working capital to manage NMS moving forward.....

[lanoitar]

A bonus issue will typically increase the mkt cap without any change in fundamentals. This will reduce the cost of equity for the coy, should mgmt decide to raise funds through rights/placement. Given the higher gearing now, it is not a remote possibility, IMHO.

[Drizzt]

it depends a lot on the psyche of the management when issuing a bonus issue. i am wonder if bonus issue will increase market cap. market cap should stay the same sans any cash dividends paid out.

bonus issues are cosmetic but like scrip it is making the investors vote whether they continue to trust the company's future growth potential.

in the case of noble over here >> http://www.investmentmoats.com/stock-mar...al-return/

future growth turns out to be great for those who took these cosmetics. they have more shares compare to the others who got invested late. but the important thing is that future growth is good.

but i am wondering. this can be the case of they dont really see an importance to make use of capital. but if they have capital they can certainly do much much more. had they need capital they would have chose a lower payout ratio or not paid out at all.

seems to me its like entertaining the investors

[Musicwhiz]

Hi Drizzt,

Thanks, good points made.

I think one has to see if the Company really has the potential to grow not just earnings, but also its recurrent cash flows. And how this is achieved should also be scrutinized - internal cash flows, equity or debt; and how much of each?

Right now MTQ is powering their growth by using cheap leverage, but I am hoping it does not come back to bite them once interest rates start to rise. Hopefully, they would have locked in low cost of debt for an extended period.

Another factor is the performance of the acquisitions - I tend to be rather skeptical of one good quarter and will not extrapolate it further. Let us see what 1Q FY 2014 will bring.

As for the dividends cum bonus issue, remember that this is an indirect way for the directors and major shareholders to increase their stake in the Company without buying more shares from the open market. This is the purpose of scrip most of the time. Also, Management may want some spending money from time to time and declaring a dividend gives them that.

[dydx]

Today (7May13), MTQ jumped $0.155, or 11.4%, to close at $1.52, with a high 1028 lots transacted. I guess some happy shareholders decided to sell because they have never seen MTQ trading at such high prices. Would Mr Market prove them wrong?

Today OSK/DMG has issued a brief report on MTQ and raised their TP to $2.10 (from $1.66).....
http://www.remisiers.org/cms_images/rese...atters.pdf
There should be more reports coming out soon after MTQ has conducted their usual results briefing for stock analysts and fund managers.

[Musicwhiz]

NextInsight has written a good summary of MTQ's results and also has a short Q&A session with the Management. It seems that costs may rise in Aussie in the medium-term, pressurizing the Engine Systems division.

http://www.nextinsight.biz/index.php/sto...h-dividend

I also feel that the analyst at DMG OSK is too bullish in his DCF assessment, extrapolating higher revenues/profits from NMS when it has shown only one quarter of profitability. Let us remember that it took a significant amount of time to restructure NMS, and it will not likely show profitability consistently so soon. Also, his estimates of cash breakeven for Bahrain may be too optimistic, as Management has indicated that it is tough to get skilled labour there and that margin per job is still sub-optimal.

Therefore, I would advise caution with regards to the valuation for the Company. I am still going through the financials but it is not easy as there is consolidation involved, therefore it is not directly comparable to FY 2012.

There should be more reports coming out soon after MTQ has conducted their usual results briefing for stock analysts and fund managers.

As far as I am aware, DMG OSK is the only brokerage covering MTQ. Therefore, I would not be expecting any more reports on it.