Date of Report
October 7, 2024
Broker
Maybank Research Pte Ltd
Company Overview
Marco Polo Marine (MPM) is a reputable integrated marine logistics group operating in Southeast Asia. The company engages in vessel chartering, shipbuilding, conversion, repair, and maintenance services. MPM is heavily involved in both the oil & gas (O&G) and renewable energy sectors, particularly offshore windfarms.
Strategic Positioning and Growth
Marco Polo Marine has successfully pivoted towards serving offshore windfarm operators, particularly in Taiwan, while maintaining its presence in the O&G sector. This strategic move has opened new growth avenues, especially in chartering vessels to support renewable energy projects. The company’s 2017 restructuring enabled it to capitalize on a boom in demand for its services.
Impact of Rising Oil Prices
With oil prices on the rise, MPM is well-positioned to benefit from higher charter rates and continued strong utilization of its vessels. The company’s fleet, especially in offshore support vessels (OSV), crew transfer vessels (CTV), and commissioning service operation vessels (CSOV), is expected to see higher demand, leading to improved financial performance.
Financial Projections and Performance
- FY25 Earnings Growth: MPM is expected to witness a surge in FY25 earnings due to increased ship repair volumes, rising from the expansion of its fourth dry dock, expected to contribute a 25% increase in revenue from April 2025.
- Charter Rates: MPM anticipates continued growth in chartering and ship repair revenue due to higher rates and stronger demand. The new CSOV, set to be completed by 1Q25, will also drive 15-20% net profit growth (NPAT) in FY25.
- Core Financial Metrics:
- Core net profit is projected to grow 23.7% in FY25, reaching SGD32.2 million.
- The company remains in a net cash position, with zero debt, offering a strong balance sheet.
Key Projects and Assets
- CTV Fleet Expansion: MPM’s subsidiary, PKR Offshore, has entered into contracts to supply CTVs to Siemens Gamesa’s offshore wind projects in Taiwan and South Korea. By the end of 2024, MPM expects to deliver two CTVs, and plans to expand the fleet to 10-15 vessels over the next 4-5 years.
- CSOV as a Growth Catalyst: The construction of MPM’s first CSOV, delayed previously, is expected to be completed by 1Q25. This is considered a major growth catalyst, with the vessel contracted by key customer Vestas for offshore windfarm projects.
- Ship Repair: MPM’s ship repair business is set for expansion, with the fourth dry dock coming online in FY25. This will allow MPM to handle higher volumes of third-party repair work and increase its shipbuilding activities.
Market Valuation
MPM is trading at an attractive valuation of 6.6x FY25E price-to-earnings ratio (P/E), a significant discount compared to global and regional peers, which average between 15x-25x. This undervaluation presents a potential buying opportunity for investors, with forecasted earnings growth driven by the wind energy and O&G sectors.
Risks and Challenges
While MPM is well-positioned for growth, several risks could impact its performance, including:
- A global economic slowdown, which could reduce charter rates and demand for vessels.
- A drop in oil prices, which could negatively affect sentiment in the vessel chartering and building sectors.
- Geopolitical tensions between China and Taiwan, which could disrupt offshore operations.
Conclusion
Marco Polo Marine is poised for a strong performance in FY25, benefiting from rising oil prices, increased demand for renewable energy support vessels, and the expansion of its ship repair capabilities. Investors are encouraged to accumulate shares ahead of key catalysts, particularly the completion of the CSOV by 1Q25 and the expansion of its CTV fleet.
