Deep in the south of Tuas lies JTC Corp’s Offshore Marine Centre 1 (OMC1), a purpose-built fabrication yard facility for the specific use of the marine and offshore engineering industry.
Operated by JTC subsidiary Jurong Port since 2011, the common user facility serves as a “single stop” to provide companies with shared access to ready-built staging areas and berths for activities such as the fabrication, assembly, maintenance, repair and overhaul of offshore rigs, modules and equipment.
Simultaneously, Jurong Port operates as one of Singapore’s main Free Trade Zones, which means that goods imported and re-exported from within OMC1 are not levied with customs, excise charges, or goods and services tax.
This allows fabricators and engineering companies like MTQ Corp M05 to avoid heavy capital outlays while having the flexibility to use OMC1 to build and fabricate its engineering solutions for oilfield and industrial equipment users and manufacturers safely, efficiently and cost-effectively.
MTQ, the newest tenant of OMC1, previously operated out of its Pandan Loop facility and officially changed its registered address to the Tuas South location on April 26 — just over a year since it acquired the facility from Cameron International Facility.
Achieving steady, quality growth
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MTQ’s new purpose-built facility has arrived at the right time for the company, with the acceleration of drilling activities in the Middle East set to continue benefitting its operations at home in Singapore.
For its FY2023 ended March 31, the company recorded earnings of $3.7 million — almost tripling its earnings of $1.3 million for the previous financial year. Driven by significant growth in the Middle East, MTQ’s full-year revenue of $83.8 million was also up by 61% compared to FY2022.
Together with the higher revenue growth, other operating expenses and staff costs recorded an increase, which included extra overheads arising from operating out of two facilities while the company shifted its key Singapore operations from Pandan Loop to Tuas.
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Costs incurred relating to MTQ’s Pandan Loop property and relocation during FY2023 were $1.1 million and $0.8 million, respectively. These expenses will discontinue in the near future once the disposal of the leasehold property in Pandan Loop is completed, says the company.
The company recently announced that it received consent from JTC for selling its Pandan Loop property and is working towards completing the disposal as soon as possible. With the relocation of its operations to Tuas “essentially completed”, MTQ’s CEO Kuah Boon Wee says its focus will be on consolidating its operations and maximising its efficiencies.
Gross profit margins improved to 32.2% for FY2023, compared to 28.2% in the preceding financial year. Kuah says the company’s margin improvement is its higher utilisation rate as activities increased this past year. Despite MTQ’s impressive improvement in earnings and revenue, the CEO insists that the company will remain cautious in the near future. “It’s early days in our cycle. We had a growth spurt last year, primarily because of all this mobilisation [in activity], but we want to see where things settle down.”
In terms of utilisation, which is key to revenue generation, Kuah says this remains “healthy”. “I would say [utilisation levels are] possibly even a bit too high at over 10 hours per day for the last six months,” he adds. “Our challenge will be to hold on to staff, hire when we can, and manage utilisation to keep current levels.”
Even by maintaining the current utilisation levels, Kuah is clear that the next financial year will not see a “replication” of FY2023’s growth. Considering the volatile industry, not to mention supply-chain disruptions, he notes that fulfilling logistics cycles have faced their fair share of obstacles. “The whole industry has suffered from chronic underinvestment for a long time,” he says.
Instead, Kuah is aiming for steady growth while hoping costs can be better contained as MTQ achieves greater economies of scale. “I think we can continue to achieve growth, but I think we will be more focused on the quality of growth and making sure we can continue to deliver,” says Kuah. “Nobody can keep up with the growth we posted last year.”
From their October 2020 low of 17 cents, MTQ shares have improved somewhat to close at 25.5 cents on May 30, valuing the company at 15.71 times historical earnings and giving it a market value of $57.4 million.
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According to Jarick Seet of Maybank Securities, MTQ’s current valuation is “quite fair”, with a big chunk of the upside already priced in. On their business model, Seet notes that while it is a capital expenditure-intensive business, this also equates to a higher barrier of entry to new participants due to the large set-up costs involved.
With the oil and gas industry investing to make up for the drought over the past few years, MTQ should continue to be a “beneficiary” of an expected pick-up in orders, adds Seet, who does not have a formal coverage on this stock.
Opportunities in the Middle East
While replicating FY2023’s results this year may not be within the realms of possibility, according to Kuah, MTQ has plenty to look forward to, given the upbeat outlook for the oil and gas sector.
Spillover opportunities in the Middle East saw its operations in Bahrain more than doubling its FY2022 revenue of $24.1 million to $40.3 million in FY2023, just edging out its Singapore-generated revenue of $38.7 million, which also improved significantly from the $23.3 million recorded in the previous year.
Looking ahead, Kuah says that MTQ is committed to maintaining this momentum and meeting its customers’ needs, and will focus on investing in skilled labour and infrastructure to drive operational efficiencies in regions of high growth. “The group will also accelerate its efforts to look for new growth areas amid current high utilisation levels. The Middle East is an important area in our future growth.”
“We are fairly bullish on the Middle East because national oil companies are now driving regional countries. Corporations are not driving them; they don’t have to turn to international banks,” he adds.
For Kuah, the national oil companies of the Middle East will “unashamedly” make the necessary investments in oil and gas that have been critically missing for an extended period, during which traditional energy sources were overlooked.
He adds that MTQ is looking for opportunities to deploy assets in the Middle East by expanding its operations or adding to existing capacity. “Because the increase in the [Middle Eastern] market is quite significant, we want to sustain some level of investment in the region.”
Keeping with traditions
The return to the fashion of fossil fuel-based energy sources due to the European energy crisis has undoubtedly benefitted MTQ, which Kuah says still operates a “pretty traditional” energy business model.
Although the company has committed to “dramatically reduce” the amount of fossil energy that it consumes — it has installed solar panels in all of its facilities to offset energy usage — the CEO candidly explains that while the company is open to looking into the renewable energy space, it has not found an “obvious angle” to enter the market just yet.
According to Kuah, the high-pressure equipment MTQ works with is designed to be inserted into the seabed. “If we talk about wind turbines and solar panels, it’s a very different dynamic. There are no relevant skills or expertise that we can lend to them.”
Still, he notes that the company will continue to explore opportunities to enter the renewables space. For example, Kuah notes that the transportation vessels MTQ operates for its oil and gas equipment can also transport machinery used in renewable energy, such as wind turbine parts — which facilitates an “easier transition”.
“But if we’re talking about maintaining equipment, the nature of the equipment in wind turbines and solar panels, and our sort of business is quite different,” Kuah emphasises while acknowledging the importance of moving to more eco-friendly sources of energy, noting the shift of capital from investment banks away from the fossil fuel industry.
On May 11, BNP Paribas, France’s largest lender, announced that it would no longer provide financing for developing new oil and gas fields.
However, he believes that the only way to increase corporations’ “environmentally-focused agenda” is to maintain their fossil fuel footprint while simultaneously expanding their renewable footprint. “You’re not going to give up one for the other,” says Kuah.
He adds that MTQ’s business will continue to focus on maintaining its assets that are in operation. “You cannot build new assets anymore with the same level of intensity as the past because banks won’t finance them any longer, but you have to keep the activity level robust.”
