UOB Kay Hian analysts Heidi Mo and John Cheong have upgraded Marco Polo Marine 5LY to “buy” with a higher target price of 6 cents from 4.8 cents previously.
In their report dated June 12, the analysts see “encouraging times ahead” for the company, noting several tailwinds in the sectors and markets it operates.
At present, the higher oil & gas and offshore windfarm activities, which lead to higher charter rates, put Marco Polo Marine in a good spot given its operating markets. According to consultant Mordor Intelligence, the Asia Pacific (APAC) offshore supply vessel (OSV) market is expected to record a compound annual growth rate (CAGR) of over 7% from 2022 to 2027, which is favourable for the company.
“In 1HFY2023, we have already seen a 65% y-o-y increase in average charter rates, and an 8 percentage point y-o-y increase in Marco Polo Marine’s vessel utilisation rates to 66%,” note Mo and Cheong.
The company also saw “commendable growth” across both of its business segments but was undermined by one-off items.
In 1HFY2023, Marco Polo Marine reported a 167% y-o-y surge in its core ebitda to $15.5 million driven by a 133.3% y-o-y growth in revenue in the ship chartering segment to $24.5 million. The higher revenue for the segment saw $12.9 million contributed by the consolidation from both the company’s Indonesian subsidiary PT BBR Tbk (PT BBR) and Taiwan-based joint venture (JV), PKR Offshore. Higher average charter rates and utilisation rates for its fleet also led to improved financials.
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In addition, the company’s shipbuilding & repair operations also registered a significant 83.6% y-o-y revenue growth to $31.4 million, owing to higher contract values of repair projects as well as new shipbuilding projects.
“Upon adjusting for one-off items [which are a] $5.2 million in remeasurement gain on previously held equity interest in PT BBR in 1HFY2022, $4.2 million in a reversal of impairment loss on receivables due from PT BBR in 1HFY2022, and $2.6 million in unrealised foreign exchange loss in 1HFY2023, we see that core net profit has in fact surged 372% y-o-y from $1.8 million to $8.5 million,” write Mo and Cheong.
Marco Polo Marine is also in time to meet the increasing demand for support vessels in Asia’s offshore windfarm industry, note the analysts. The company previously announced that it plans to build, own and operate a new commissioning service operation vessel (CSOV), as a shortage of such ships in the market is observed.
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“Demand for CSOVs is on the rise, with increased construction of new projects and projects near their final commissioning dates,” say Mo and Cheong. “According to management, the CSOV is at 13% completion as at end-1HFY2023 and is expected to be completed in 1QFY2024, in time to meet the increasing demand for support vessels in Asia’s offshore windfarm industry.”
“The group has also successfully secured several new build contracts for the construction of barges to be delivered up till 1HFY2024, ensuring sustained shipyard utilisation levels. As at 2Q23, the shipyard was operating at a higher average utilisation rate of 84% (1QFY2023: 74%),” they add.
Another plus for Marco Polo Marine is its strong cash position of $53.0 million as at end-March, which provides a “comfortable level of support” for the analysts’ valuation.
To this end, Mo and Cheong have raised their revenue forecasts for the company by 41% to 55% from FY2023 to FY2025 on higher charter rates.
Their net profit estimates have also increased by 2% to $17.4 million for FY2024 and by 15% to $19.7 million in FY2025.
Mo and Cheong’s latest target price values Marco Polo Marine at an FY2023 P/B of 1.3x, in line with +2 standard deviation (s.d.) of its historical five-year average on the back of improving charter rates and vessel utilisation rates.
Higher-than-expected ship charter rates and the utilisation of vessels, new ship chartering contracts and higher value of repair projects during the year are all positive catalysts.
As at 10.23am, shares in Marco Polo Marine are trading 0.1 cent higher or 1.89% up at 5.4 cents.
