RHB’s Jarick Seet has initiated coverage of Marco Polo Marine with a “buy” call and 4.1 cents target price, an upside of around a third from current levels.
“We believe that Marco Polo Marine’s diversification into servicing the renewable energy sector will bear fruit in the next 1-2 years. In the meantime, the oil & gas sector remains the major source of income for the group. As such, we expect to see an earnings rebound, and the group to record a turnaround back to strong profitability in the next 2-3 years,” writes Seet in his June 16 note.
In recent years, the company has been actively diversifying and expanding its business beyond the oil and gas industry. As of 1H21, 20% of Marco Polo Marine’s utilised vessels are working on offshore windfarm projects in Taiwan.
The way Seet sees it, the company has an edge there as the vessels working on the Taiwanese windfarm projects must not be made in China. Also, the ages of its ships are also below 12 years. In contrast, 80-90% of the OSVs in the region that are below 12 years old are built in China.
Seet also notes that Marco Polo Marine’s vessels are more than well-equipped, as offshore O&G activities have more stringent requirements.
See also: Marco Polo Marine to boost ship repair capacity by up to 20% with dry dock extension
With the influx of investments in renewable energy, this sector is a likely “major growth driver,” writes Seet.
As such, Marco Polo Marine might double its chartering fleet in this space by end of 1Q22.
The utilisation rate of its chartering fleet – which is around 60% currently – is seen to rise to about 80% by second half of 2022. “This would also lift its charter rates, thereby further improving its margins and profitability,” writes Seet.
In addition, Marco Polo Marine is seeing “surging demand” for shipbuilding, repair, and upgrades.
In 1HFY21, revenue from its shipyard division surged 34.5% y-o-y and Seet expects this strong growth to extend into FY2022. To cope with surging demand, on June 15, the company announced plans to expand the capacity of its Dry Dock 1 by 20% by 2QFY2022.
Besides the renewable energy boom, Seet believes the company, a “rare net cash”, is still well poised to capture growth from the recovery in crude oil prices, which hit its highest recently since 2018.
“We believe that the continued recovery will be positive for Marco Polo Marine, across all its business segments. With the pivot towards renewable energy, we are confident Marco Polo Marine will record a strong turnaround in numbers,” writes Seet.
As of 11.26am on June 16, the stock traded at 2.9 cents, which is below the 3.2 and 3.3 cents cost incurred by the group of white knights and creditors at the company’s restructuring exercise announced in late 2017.
