UOB Kay Hian (UOBKH) is maintaining its “buy” call on Marco Polo Marine (MPM), but at revised target price of 3.6 cents.
This is up 1.6 cents from their previous 2 cent call and is believed to give the counter an upside of 28.6%, analyst Clement Ho explains in a July 14 note.
His move follows the resilience seen in the rationalised oil & gas offshore support industry throughout the pandemic.
This is the result of minimal newbuilds, more vessels on lay ups and stronger demand in the infrastructure and renewable energy sectors in Southeast Asia, says Ho.
These developments bode well for the integrated marine logistics provider who saw its revenue rise by 13.8% y-o-y to $21.1 million in 1HFY2021 ended March thanks to the commencement of two new construction projects under its ship building division and increased ship repair jobs.
Overall, its core EBITDA (earnings before interest, taxes, depreciation and ammortisation) jumped by 88% y-o-y to $4.0 million in its 1HFY2021.
Ho’s liking for MPM stems from its lean operations following the completion of its corporate restructuring efforts.
So far, the company’s shift towards renewable energy has been successful with close to 20% of its charter fleet supporting offshore windfarm projects in the Asia Pacific region.
“The diversification provides a new utilisation base for MPM’s vessels, particularly on the growing demand specifically from the offshore wind energy industry in Asia, which is in its nascent stage where structures are installed in shallow waters with depth of up to 50-60m,” notes Ho.
MPM’s rig utilisation and day rates are also set to improve as crude oil prices rise, adds Ho.
In the past six months, the Brent forward oil price for delivery in end-25 has risen 23% from US$48 ($65.07) per barrel to US$59 per barrel.
This “is a strong reflection that more projects should come on stream due to decent project IRRs; thus being in favour of the increasing oil industry capex,” Ho explains.
Against this backdrop, Ho believes that MPM’s margins should remain positive due to improved sector dynamics after the 2014 oil crisis and effective cost control.
He is also expecting a growing source of stable recurring income from MPM’s ship repair business, with most of its business coming from repeat customers.
Aside from the improvements seen in the industry, Ho says the company’s recent 20% expansion in its ship repair site in mid-June “is a strong signal” of a possible increase in workload.
Historically, the ship repairs segment has seen revenue increasing at a steady pace from an average of 49% in 2HFY2017-2HFY2019 to 57% in 1HFY2020-1HFY2021.
In the most recent 1HFY2021 revenue from the ship repairs business grew by 37% y-o-y thanks to a shift in repair works away from the Singapore yards due to the relatively higher costs.
The combination of improving charter rates, better vessel utilisation rates and an already-impaired book value of 3 cents/share values MPM at 1.1x FY2022 price-to-book (P/B) value.
This is supported by the anticipated rise in core EBITDA from S$5m in FY2021 to $13 million in FY2023, or a 15% CAGR over the 2-year period, notes Ho.
MPM is currently trading at 0.87x FY22F P/B.
As at 10.56am, shares in MPM were down 0.1 cents or 3.44% to 2.8 cents.
