MTQ's gross profit soared 106% to $28.2m

Cost reductions in NMS boosted growth.

According to OSK, Revenue surged 146% y-o-y to SGD94.4m, largely due contribution from its subsidiary Neptune Marine Services (NMS AU; Not Rated,), while gross profit increased by 106% to SGD28.2m. Its bottomline rose by 38% y-o-y to SGD6.5m as management continues to reduce NMS’ overheads.

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MTQ’s 1QFY14 results were in line with expectations, as earnings surged 38% y-o-y. Its outlook is optimistic, backed by a record high orderbook and a robust industry marked by high rig utilization rates and a growing number of offshore assets that require servicing.

We continue to like MTQ for its recurring income model, and raise our TP to SGD2.20, based on 10x P/E on FY14F EPS and a SGD3.18 DCF value.

Bottomline up 38% y-o-y to SGD6.5m. MTQ Corp (MTQ)’s results accounted for 23.6% of our FY14 estimate, in line with our preview titled High Anticipation Of Good News published on 19 July.

Visible cost reductions in NMS through FY16. Management sees potential ways to reduce costs in NMS eg by reducing directors’ fees, minimizing listing costs and improving operational efficiency in the short run.

In the longer term, by 2015, its operations will be consolidated into a single purpose-built facility in an industrial zone, cutting down on the currently high rental costs for office space in prime downtown Perth.

Cash-positive in Bahrain. MTQ’s Bahrain operation has turned cash-positive ahead of expectations, which strengthens our belief that this segment will achieve profitability this year. Earnings from Bahrain should become a major source of organic growth for MTQ from FY15 onward.

All about execution. MTQ’s growth prospects are robust, with NMS continuing to deliver healthy margins after a recent turnaround. The Group’s big-picture strategy is to maximize yields in Singapore, grow in Bahrain, and boost NMS’ profitability and expand beyond Australia.

TP raised to SGD2.20 on 10x FY14F EPS. We still see MTQ as a deep-value stock, as it is at a mere 49.x/4.1x FY14F/FY15F EV/EBITDA. We raise our TP to SGD2.20, based on 10x FY14F EPS (previously 8x), supported by our DCF-value of SGD3.15 on this strong cash-generating company.