Marco Polo Marine (MPM) is a reputable operator in Southeast Asia, focusing on marine logistics. The company engages in chartering, building, converting, maintaining, and repairing vessels. MPM has diversified its operations to serve both the oil & gas (O&G) and renewable energy sectors, with a strong emphasis on offshore windfarms in Taiwan. The company has made a strategic pivot towards the renewable energy sector, particularly offshore windfarm operations, positioning itself for long-term growth.
Valuation and Price Target
MPM is considered deeply undervalued. The report assigns a target price (TP) of SGD0.08, with a potential upside of 48% from the current share price of SGD0.05. The valuation is based on 11x FY24E P/E, and the company is currently trading at just 7.4x FY24E P/E, significantly lower than global and regional peers trading between 15x and 25x on average.
Vessel Valuation
The company’s fleet is a major component of its valuation. MPM’s vessels are valued at approximately SGD195 million, close to its market capitalization. This includes SGD60 million for its offshore support vessels (OSVs) and barges, while its crew transfer vessels (CTVs) and upcoming commissioning service operation vessel (CSOV) are estimated at SGD105 million. The company’s fleet is relatively young, with an average age of seven years, contributing to its undervaluation compared to peers like Atlantic Navigation.
Earnings Outlook
- FY25 Earnings Growth: MPM’s earnings are expected to jump in FY25, driven by the commencement of earnings from its CSOV and CTV fleet. Higher charter rates and increased ship repair volumes are expected to boost earnings further.
- Repair Volumes: After delays in 3QFY24 due to construction of its CSOV, ship repair volumes are anticipated to ramp up significantly by 1Q25. The expansion of the company’s fourth dry dock is expected to increase ship repair revenues by 25%, with revenue recognition beginning in 2H25.
- Fleet Expansion: MPM is expanding its CTV fleet, having signed an agreement through its subsidiary, PKR Offshore, to charter CTVs to Siemens Gamesa’s offshore wind projects in Taiwan and South Korea. MPM aims to grow its CTV fleet to 10-15 vessels over the next 4-5 years.
Strategic Partnerships and Growth Drivers
- Key Clients and Strategic Relationships: MPM has strengthened its relationship with key clients like Vestas, particularly in Taiwan, which is expected to remain a core partner for its long-term contracts. The company has also signed a three-year contract for its CSOV with Vestas.
- New Vessel Acquisitions: To meet rising demand in the offshore renewable energy sector, MPM is likely to acquire additional vessels for chartering to offshore windfarm operators in Taiwan and the Asia-Pacific region.
- Charter Rates and Utilization: Charter rates have been rising, contributing to higher profitability for MPM. The utilization of its vessels increased from 50-60% to 70-80% in FY23, and this trend is expected to continue, supporting further earnings growth.
Financial Performance
- Revenue and Profit Growth: MPM reported revenue growth of 47.7% in FY23, with forecasted growth of 5.1% in FY24 and 14.3% in FY25. Core net profit is expected to grow 15.2% in FY24 and 23.7% in FY25, driven by higher charter rates, vessel utilization, and the commencement of CSOV and CTV operations.
- Net Cash Position: MPM continues to maintain a strong net cash position, which enables it to fund its vessel acquisitions and shipyard expansion without the need for additional debt.
Risks and Challenges
- Global Recession or Oil Price Decline: A global economic slowdown or a significant drop in oil prices could negatively impact demand for vessels, affecting MPM’s charter rates and profitability.
- Geopolitical Risks: Any conflict between China and Taiwan could disrupt MPM’s operations, particularly its offshore windfarm projects in Taiwan.
Investment Thesis
MPM offers a compelling investment opportunity, trading at a significant discount to its peers. The company is well-positioned to benefit from rising demand in both the O&G and renewable energy sectors, particularly offshore wind. Its strong financial position, strategic relationships, and growing fleet are key drivers for its expected earnings growth in FY25 and beyond. MPM’s shares present an attractive upside potential, making it a buy at current levels.
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