MTQ Corporation Limited’s Earnings: What’s Next After A Slump In Profit?

On Friday, offshore services provider MTQ Corporation Limited (SGX: M05) released its fiscal third quarter results for the financial year ending 31 March 2015 (FY2015). The reporting period was for the quarter ended 31 December 2014.

MTQ is involved in oilfield equipment repairs and rental operations (under its Oilfield Engineering business segment) and is also the biggest aftermarket authorized service supplier of turbochargers and diesel fuel injection parts and services in Australia.

With that, let’s take a closer look at MTQ’s latest quarterly earnings.

Revenue and profit highlights

For the quarter, revenue dipped slightly by 0.4% year-on-year to S$74.9 million. According to the company, “lower sales activities were recorded in all the Singapore businesses reflecting the impact of weaker market conditions.” The “weaker market conditions” cited by management were likely a reference to the price of oil, which has crashed by more than half since June 2014.

The slight decrease in revenue was not met with a small decline in gross profit – MTQ’s gross profit actually slid by 14% to S$21.9 million on the back of “lower gross profit and margins recorded in the Oilfield Engineering business in Singapore and the inclusion of Binder’s losses.”  Binder, which was acquired in January 2014, is a pipe support and pipe suspension builder.

The double-digit fall in gross profit had trickled down to the bottom line, resulting in a 66% plunge in net profit from S$6.4 million in the same quarter a year ago to S$2.2 million.

Balance sheet and cashflow highlights

Despite the weak profit performance in the fiscal third quarter, MTQ managed to maintain a strong balance sheet. As of the end of 2014, the company had total borrowings of S$61 million and a cash balance of S$44 million. Three months ago, the figures stood at S$65 million and S$37 million respectively.

As a result of the higher cash position and lower debt, MTQ’s net gearing improved from 16.8% to 10.8%.

For the nine months ended 31 December 2014, MTQ’s net cash flow from operations came in at S$20.7 million while capex was at S$9.7 million. This translates to a free cash flow figure of around S$11 million. In the corresponding period a year ago, the firm produced free cash flow of S$14 million.

Future prospects

When it comes to the future outlook for MTQ, Kuah Boon Wee, chief executive of the company, had the following to say:

“We expect the operating environment to remain subdued for the foreseeable future. Most of our customers are looking to reduce exploration expenditure and we are focused on capturing all available market opportunities… The Group is in strong financial shape with low gearing. We are well positioned to remain strong through current troughs and to look forward to the inevitable recovery. ”

For the past 12 months, MTQ’s shares have fallen by 33.4% while the Straits Times Index  (SGX: ^STI) actually rose 13%. Will the company be able to do an “inevitable” recovery – as per the CEO’s comments – or will it stay in the doldrums? A lot would depend on what the price of oil will do going forward – and that’s really up to anybody’s guess. But at the very least, MTQ has a strong balance sheet to weather the “storm,” so that’s a positive.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David KuoTake Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.