RHB Bank Singapore analyst Alfie Yeo is keeping his “buy” call and target price of 6 cents on Marco Polo Marine 5LY even though shares in the company surged by over 20% from 4.3 cents since Yeo’s last update on March 30.
In Yeo’s view, the stock remains “on track for growth” as it remains in a “sweet spot” to deploy and operate its first commissioning service operation vessel (CSOV) by December 2023 or in the 1Q2024. This will come at a time when such vessels, which are used to build offshore wind farms, are in short supply, he notes.
The elevated demand for offshore vessels in both the oil and gas (O&G) and offshore windfarm sectors due to limited vessels in the market, puts the company in a good spot to enjoy higher charter rates.
“There is tight supply for vessels, as bank financing for new ones remains tight while older vessels are being scrapped. There are now [around] 800 vessels – down from [around] 1,000 previously – serving both the offshore windfarms and O&G sectors. Additionally, the former market is currently facing a shortage of tier-1 CSOVs with only [around] 10 now operating – mainly deployed in Europe – while another 30 or so are on order,” Yeo writes.
In addition, demand for its vessels remains robust amid increasing regional O&G exploration. At the same time, North Asian nations are building up their offshore windfarms to meet green or renewable energy environmental targets.
Momentum is also building up for Marco Polo Marine’s chartering and shipbuilding businesses, with Yeo noting that the company’s revenue surged by 102% y-o-y to $56 million for the 1HFY2023 ended March 31, driven by its ship chartering and shipyard segments.
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“Its average charter rates in the 2QFY2023 have more than doubled from 1QFY2020’s numbers, driven by strong vessel demand from the O&G and offshore windfarm sectors”, Yeo adds. “Average vessel utilisation rates for 1HFY2023 were decent at 66% vs 58% in 1HFY2022. Shipyard utilisation for 1QFY2023 and 2QFY2023 were healthy at 74% and 84% on strong ship repair momentum, with new shipbuilding contracts for barges tied up till 1HFY2024.”
While Yeo has also kept his earnings targets unchanged, he notes that his forecasts and target price are premised on improved charter rates, stronger utilisation rates, and the successful deployment of the company’s CSOV within the next two years.
“We believe any underperformance in these aspects will represent downside risks to our earnings estimates and target price,” he says.
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In environmental, social and governance (ESG), the analyst has tweaked his ESG weightage on the company although its ESG score remains at the country median of 3 out of 4. “We assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars,” says Yeo.
Shares in Marco Polo Marine closed 0.1 cent lower or 1.96% down at 5 cents on May 31.
