UOB Kay Hian analyst Clement Ho maintains a “buy” rating on Marco Polo Marine (MPM SP) and slightly increased its target price to 3.8 cents from 3.6 cents with an upside of 34.7%.
“We value MPM at 1.1 times FY2022 P/B, in line to +2 standard deviation of its historical 5-year average on the back of improving charter rates, better vessel utilisation rate, and an already-impaired book value of 3 cents per share,” says Ho.
This is supported by the anticipated rise in core EBITDA from $10.2 million in FY2021 to $14.1 million in FY2024, or a 11% compound annual growth rate over the 3-year period. “MPM is currently trading at 0.82 times FY2022 P/B and we believe valuations are supported by the massive writedown on its assets undertaken during the corporate restructuring in FY2017,” says the analyst.
This is in light of strong FY2021 results due to better-than-expected fleet utilisation rates, as well as shipbuilding and repair operations, according to Ho. “We like MPM for its lean operations following the completion of its corporate restructuring efforts, and believe the company is primed to benefit from positive operating leverage,” says the analyst.
MPM reported a turnaround in adjusted FY2021 net profit to $3.0 million from loss of $8.9 million in FY2020. “The positive set of financials came on the back of higher revenue of $46.1 million, an increase of 49.5% y-o-y, attributed to the commencement of two new construction projects under its shipbuilding division (+51%) and increased ship repair jobs, as well as higher average utilisation rate for both tugboats and barges and offshore support vessels (OSV), which resulted in the 48% y-o-y growth in the ship chartering operations division,” says Ho.
The overall gross margin spiked to 26.1% from 14.3% in FY2020 as well. “The positive set of results is considered in line with industry expert Clarksons’ expectations, suggesting that vessel charter rates have rationalised, helped by minimal newbuilds and more vessels on lay ups,” says the analyst.
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Diversification efforts by MPM are also pulling through; where the shift away from supporting the oil and gas industry towards the renewable energy segment has been successful for the company. “Currently, two of MPM’s charter fleet of 11 OSVs now support offshore windfarm projects in the Asia Pacific region,” says Ho. “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 50-60 metres.”
“This presents a tremendous opportunity for MPM, whose fleet specialises in support in those depth regions,” he added.
Additionally, Ho observes that MPM is clean from debt and balance sheet impaired. “Closing in on the five-year mark since a capital injection in FY2017, MPM has shown excellent cash management amid the industry consolidation, with its net cash as of end-FY2021 standing at $20.3 million,” says Ho.
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“Furthermore, the group undertook massive asset impairments during the corporate restructuring carried out at the bottom of the industry downturn, which provides a comfortable level of support for our valuation.”
Some share price catalysts that Ho anticipates include higher-than-expected vessel utilisation rates and award of new ship chartering contracts.
At 2:42pm, shares in MPM are trading flat at 2.8 cents.
