It’s upwards and onwards for Marco Polo Marine. On the one hand, the company’s shipbuilding and repair business is seeing a revival as demand for vessels picks up. On the other hand, its move to capture a share of the growing offshore wind farming market with its fleet of support vessels has helped to drive growth at both the top and bottom lines.
Speaking to visiting investors, analysts and media on Jan 16, CEO Sean Lee says that the company’s yard in Batam enjoys a healthy business, thanks to a steady stream of repeat customers. The yard, which spans 348,705 sq m (3.75 million sq ft) with a seafront of 650m, is said to be one of the larger yards in Indonesia.
Built in 2006 with three dry docks added in 2009, the yard has completed over 1,000 repair projects in the last 10 years. It has also completed over 100 vessels and barges, with an expanded repertoire of new types ranging from DP3 offshore construction vessels, 12000HP DP2 anchor handling tug supply to high-tech sustainable fish farms, product tankers, accommodation barges, drilling rig barges and towing tugs.
The company’s executives note that between 50% and 70% of the revenue from shiprepair is from repeat customers, which indicates the yard’s reliability. Significant customers include Indonesia-based Samudera Shipping and Pacific International Lines, Singapore’s leading privately-held liner.
Vessels only help their owners make money when they are ferrying cargo from one port to another and not lying in dry docks. As such, yards play a key role. “These companies only go to yards that they can trust to deliver [quality work] on time, and we’ve always been able to deliver vessels on time,” says Lee. “In fact, we were able to deliver the work earlier than was expected.”
According to Chandra Mohan, senior general manager of Marco Polo Shipyard, container carriers and bulk carrier owners are very demanding because of their own charter obligations. Quite often, because of committed cargo delivery schedules, the window to make the repairs can be as narrow as 14 days and increasingly, a 12-day or even 10- day turnaround is demanded. “If you miss a day, you’ll find that they won’t be coming to you the next time,” he adds.
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Now, even with a steady stream of repeat customers, the company is actively looking for new ones to serve. The typical revenue contract size for shiprepairs ranges from $200,000 to $1 million, depending on the type of vessel and its state and condition. Last February, the yard’s capacity was expanded by 20%. With that, the company is aiming for more, bigger ticket shipbuilding contracts, says Lee. Right now, 40% of the yard is used for repair works while the remaining 60% can be used for building.
Thanks to a bigger volume of shiprepair jobs and higher chartering income, for the most recent 2HFY2022 ended Sept 30, 2022, Marco Polo Marine reported earnings of $11.3 million, up 27.8% y-o-y. Revenue, meanwhile, was up 133.9% y-o-y to $58.5 million. Net cash, as at Sept 30, 2022, was $50.3 million.
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Restructuring, rebuilding
Now, the healthy numbers reported by Marco Polo Marine are not always so. The company went through a painful restructuring in early 2018, when the entire offshore and marine sector was in the doldrums and the company was saddled with debt it could not service.
As part of the restructuring, a group of new investors bought $60 million worth of new shares at 3.2 cents each and the company was kept afloat. At its peak back in January 2010, Marco Polo Marine, which listed back in 2007 at 28 cents, was trading as high as 60 cents.
The investors included Penguin International, another Singapore-listed shipbuilding and repair company; as well as Yanlord Capital, a private vehicle of Zhong Shengjian, chairman of Yanlord Land Group. Both of these investors hold 8.6% each.
Apricot Capital, among the new investors, committed the most, ending up with a stake of 17.2%. Apricot Capital is the family office of the Teo family, better known for building and then selling the three-in-one coffeemaker Super Group. The Teos and the Lees have known each other for years.
In a separate interview with The Edge Singapore, Darren Teo, managing partner of Apricot Capital, says the investment goes beyond helping a friend and reaping monetary returns. It is also seen to have other positive multiplier effects, such as providing the sector players with a boost of confidence and also helping retail investors, says Teo, who sits on Marco Polo Marine’s board as a non-executive director.
Upon completion of the restructuring, the Lees’ stake was diluted to a fraction of their original 62%, which they gradually rebuilt. Most recently, following a married deal of 121.8 million shares last October at 3.3 cents each, the Lees are back as owners of the largest bloc with their 19.7% stake. Shares in Marco Polo Marine closed at 4.2 cents on Feb 1, valuing the company at $150.4 million.
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Capturing the wind
The company, following the restructuring, still runs its two main business segments. Via its yard in Batam, Indonesia, it provides shiprepair and building services. For the most recent FY2022, shiprepair and building accounted for $41.4 million of the revenue, up nearly 60% from $26 million booked in the preceding FY2021.
The other business segment is chartering, where it leases out its fleet of 12 offshore support vessels and two maintenance work vessels. It also owns a fleet of 21 tugs and barges. Marco Polo Marine was able to generate a much faster growth from the ship chartering segment, with revenue more than doubling between FY2021 and FY2022 to $44.7 million, thanks to higher charter and utilisation rates because of demand from its new market, offshore wind farming.
In January 2022, Marco Polo Marine entered the offshore wind farm market with the acquisition of PKR Offshore through a joint venture. To better serve this market, the company in September 2022 announced that it will build, own and operate a new commissioning service operation vessel.
To be completed in 2024, this vessel, with an estimated market value of US$60 million ($78.9 million), will be specially-equipped to cater to the offshore wind farm industry’s unique needs with features such as a walk-to-work gangway and a 3D motion-compensated crane. This vessel will be deployed in Taiwan with Danish wind turbine maker Vestas Wind Systems. In the same month, Marco Polo Marine announced an MOU with Japan’s ‘K’ Line Wind Service to explore suitable vessel deployment opportunities.
Besides Taiwan and Japan, the company is poised to enter another market. On Jan 11, it announced an MOU with Namsung Shipping and HA Energy to jointly pursue offshore wind vessel operations in South Korea. Namsung, a shipping line, has invested in the 1.5GW fixed-bottom Chujin offshore wind project, which will feature around 100 wind turbines. Engineering firm HA-E, meanwhile, offers endto-end consultation services.
“The collaboration puts us in a great position to bring together our expertise in offshore wind vessels and tap into our local partners’ deep knowledge of the Korean market,” says Lee, noting that South Korea has a target to increase its installed capacity of offshore wind power from 12GW now to 18GW– 20GW by 2030.
Marco Polo Marine is not going to turn its back on other market segments. With oil prices keeping at rather lofty levels, there is corresponding demand from the oil and gas industry as production and exploration activities pick up. The company, upon completing an existing project in Taiwan, is redeploying some of the vessels involved to the Middle East.
Nevertheless, the company is keeping its sights firmly on the wider “green” movement. It has recently obtained approval to run its green ship-recycling business, to help dispose of endof-life vessels in a sustainable manner. “This is going to be a big trend in future,” says Lee. “Even though it has not gotten any traction yet, we do have a lot of enquiries. But the treatment of the scraps makes a lot of difference.”
Upbeat analysts
Analysts such as Maybank Securities’ Jarick Seet agree with the company’s move to go after the renewable energy sector, noting that the offshore windfarm sector is a “huge space” with lots of opportunities. “If Marco Polo Marine is able to grow its fleet size while obtaining more clients, its profitability will likely continue to surge further. Its partnerships in Korea and Japan recently seem to be preparing for such an expansion,” says Seet.
UOB Kay Hian analyst Heidi Mo agrees, saying that the company is “positioned favourably” to benefit from the booming offshore wind sector. “Since the end of the Covid-19 pandemic, vessel charter and utilisation rates for tugboats, barges and offshore support vessels (OSVs) have been on the rise,” notes Mo in a Dec 7, 2022, report together her colleague John Cheong. “Additionally, the ongoing geopolitical tensions continue to drive oil prices up to their strongest levels in almost eight years,” note the analysts, who rate the stock a “hold” with a target price of 4.8 cents, up from 3.8 cents previously.
With crude oil prices hovering in the US$75- US$85 range, oil majors have stepped up production activities. “This resulted in higher capex towards reactivating offshore production platforms and further raised industry utilisation positively for OSVs,” they add.
Analysts see the shipbuilding and repair segment as the potential earnings kicker, especially given how the Batam yard now has more space to take on more contracts. “Shipbuilding will be one of the key surprises when shipbuilding orders start to come in,” says Maybank’s Seet.
