Background
MTQ is a relatively unknown in the investment community due to its small cap and that it is in the O&G support industry which is now unloved. MTQ has 2 core divisions - Oilfield Engineering and Engine Systems. Due to the recent downturn in the O&G space, the company has been burning cash and making losses. My investment thesis is simple- I am buying and hoping that MTQ turnaround and becomes profitable.
Balance Sheet
MTQ has a gearing level of about 17% based on its latest quarter results. However, this will fall because of the recent rights issue of $12 million. With the rights and warrants, MTQ is likely to be able to weather the O&G storm for another 2 years.
Post Rights and warrants, the company's reported NAV will be $0.41. Hence buying at $0.218, I have a good margin of safety as the company continues to report quarterly losses of about $0.02 each quarter.
With only 247,220,000 shares after this equity round, a simple turnaround to an annual profit of $15 million will mean an EPS of 6 cents- 3.7 times PE. This is possible given that MTQ's gross margin is about 15.0%. What is needed is for MTQ to begin getting more order book and in turn increase in revenue. MTQ will need about 200 mil in revenue to hit there again. The first milestone though is for MTQ to report a positive EBITDA.
Management
MTQ is being run by the Kuah family who have been fairly prudent. One of their actions was to suspend their dividends when the industry turned to conserve cash. MTQ used to give out dividends in the yield of 5% region.
Hi,
ReplyDeleteI have 12000 shares of MTQ and recently received notice of subscribing to 4900 Rights with warrant applied. However the issue price is $0.2 per right share with warrant. How did you get the rights at $0.018? Thanks!
I bought the rights when they were trading in the open market last week.while i paid $0.018, i have to pay the issue price of the rights as well at $0.2. Hence my total cost was $0.218
DeleteHi Choon Yuan
ReplyDeleteI am also monitoring on this but probably enter at a slightly later stage when they can show a turnaround in the first quarterly reporting they can show.
Are you expecting a turnaround on the business soon? You mentioned something about 2 years from now.
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DeleteHi B,
DeleteTwo years is based on when I expect MTQ to do another round of equity raising. This is based on their current cash reserves, future warrant proceeds and cash burn rate.