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).

Technical Analysis
Daily Chart
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, now based on 0.9x P/BV, 1 s.d. below its 5-year mean (1x P/BV previously). (Read Report)

Source : CIMB Research

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