Felicia Tan Fri, Jun 17, 2022
UOB Kay Hian analyst Clement Ho is keeping his “buy” call on Marco Polo Marine on the back of higher activity in the oil and gas industry, of which the company has benefitted from.
Thanks to the increased activity, vessel charter rates and utilisation have increased since the global economic resumption following the end of the Covid-19 pandemic lockdowns towards the later part of 2020.
Bullish expectations driven by elevated crude oil prices above US$100 ($138.66) have also resulted in oil majors looking to increase production in the commodity, Ho notes in his June 17 report.
“This translated to higher capex towards reactivating offshore production platforms and further raised industry utilisation for offshore supply vessels (OSV). Furthermore, the nascent offshore wind farm market in Southeast Asia, particularly in Taiwan, has taken up supply of OSVs for vessel operators repositioning towards the relatively longer-term charter contracts,” he writes.
In addition, Ho says the lack of investment in the offshore oil industry since 2014 is “expected to lead to upward pressure on utilisation and dayrates of support vessels going forward”.
“Industry utilisation rates have begun to rise since 2HFY2021 from higher demand due to the confluence of factors listed above,” he adds.
Marco Polo Marine itself has reported improving financials with its diversification efforts showing signs of success.
In the 1HFY2022, the company reported core EBITDA of $5.8 million, up 47.8% y-o-y. Revenue for the period increased by 30.9% y-o-y to $27.6 million. The higher revenue was attributable to the increased fleet utilisation and charter rates, as well as a rise in repair projects under the ship building & repair segment.
Gross margin for the half-year period also expanded 5.8 percentage points y-o-y to 29.6% from more activity at the shipyard.
“The shift away from supporting the oil & gas industry towards the renewable energy segment has been successful for Marco Polo Marine. Currently, five out of 13 OSVs owned by Marco Polo Marine are chartered within the offshore wind farm projects in Taiwan,” says Ho.
To this end, Ho believes the company’s margins should remain elevated due to improved sector dynamics after the 2014 oil crisis as well as management’s focus on increasing its share in the offshore windfarm market.
The company’s restructuring efforts in FY2017 have also resulted in improved profitability, with higher gross margin and a reduction in administrative expenses.
Furthermore, Marco Polo Marine is currently debt free with excellent cash management evident in its net cash of $27.9 million as at 1HFY2022.
Beyond that, Ho is positive on the company’s prospects as he sees growing recurring income from its shipyard and repairs segment.
“Apart from the ship chartering revenue of S$17.1m which constituted 62% of 1HFY22, Marco Polo Marine derived $10.5 million from the shipbuilding & repairs segment at its shipyard in Batam, Indonesia,” says the analyst.
“Prior to the tail-end of the 1HFY2022 financial period, the shipyard completed the extension of its dry dock in February, which lifted repair capacity by 20% to 450m across three dry docks. This is expected to continue driving growth for the shipbulding & repairs segment, which is expected to see higher workload from the shift in repairs from the Singapore yards. Revenue from the ship repair business is relatively sticky, with most of its business coming from repeat customers,” he adds.
In his report, Ho has upped his target price to 4.3 cents from 3.8 cents previously as he rolls his valuation base year forward to FY2023.
He has kept his peg at 1.1x P/B or 2 standard deviation of the company’s five-year average.
“This is supported by improving charter rates and better vessel utilisation,” he says. “We believe Marco Polo Marine’s already-impaired book value of 3 cents per share would provide a strong level of support for the share price, and the anticipated improvement in financial numbers should lift share price above its book value.”
Share price catalysts, in Ho’s view, include higher-than-expected ship charter rates and vessel utilisation, increased activity at the shipyard, as well as the awarding of new ship chartering contracts.
Shares in Marco Polo Marine closed 0.1 cent higher or 3.57% up at 2.9 cents on June 17.