Marco Polo Marine (MPM SP): Poised to Ride the Green Energy Wave

1QFY25 Update and Outlook
Marco Polo Marine (MPM) released its 1QFY25 business update, reporting declines in both revenue and gross profit, forming 19% and 20% of the forecast, respectively, but aligning with expectations. The gross margin expanded by 1.1 percentage points year-on-year due to higher average charter rates. A performance recovery is anticipated in 2HFY25, driven by the maiden CSOV, three new CTVs deployed in Taiwan, and a fourth dry dock expected to contribute positively. The company maintains a BUY rating with an unchanged PE-based target price of S$0.072.

1QFY25 Financial Snapshot

Source: Marco Polo Marine, UOB Kay Hian

Detailed Performance Review

1. Ship Chartering Segment

• Challenges: Lower demand for third-party chartering in Taiwan impacted the segment, leading to a 13% year-on-year decline. The downturn is expected to persist through FY25 due to the completion of current wind farm projects.
• Opportunities Ahead:
  • New vessels, including the commissioning service operation vessel (CSOV) and three crew transfer vessels (CTVs), are expected to contribute in 2HFY25.
  • A CSOV and CTV are projected to generate around US$13m (~S$17m) and US$2m (~S$3m) in revenue, respectively, over a full year of operations.

2. Shipyard Segment

• Revenue Decline: A 9% year-on-year drop in 1QFY25, attributed to fewer shipbuilding activities.
• Growth Prospects:
  • The decline was partially offset by a rise in ship repair projects, leading to an improved yard utilisation rate of 83% (+4ppt yoy).
  • The increase in vessels in the market is expected to drive repair demand, benefiting MPM’s ship repair business.
  • The new fourth dry dock is set to complete construction by end-Mar 2025, enhancing ship repair capacity by up to 25% and contributing to 2HFY25 revenue.

Stock Impact and Strategic Developments

1. Batam Shipyard Expansion

   • The newly completed CSOV, Wind Archer, equipped with advanced hybrid battery-based energy storage systems, is expected to contribute in 2HFY25.
   • The Wind Archer supports Taiwan’s renewable energy sector as the country moves to the commissioning phase of its offshore wind projects.

2. Potential Second CSOV

   • Plans for a second CSOV are in the pipeline, possibly constructed in collaboration with Norwegian vessel designer Salt Ship Design.
   • Estimated cost: US$60m-70m (S$80m-94m), with improved financing prospects due to the successful completion of the first CSOV.

3. Healthy Financial Position

   • Net cash position of S$36m at the end of FY24 provides a buffer for valuation and growth initiatives.
   • MPM is exploring various funding options and potential partnerships to co-own vessels, expanding its fleet strategically.

4. Long-Term Growth in South Korea and Japan

   • South Korea: Successful entry into the offshore wind market, with activities in the Jeonnam area expected to increase in 2025 and revenue contributions anticipated by 2027.
   • Japan: Ongoing discussions with “K” Line Wind Service, Ltd., with significant growth potential despite slower progress.

Valuation and Recommendation

• Maintain BUY with an unchanged target price of S$0.072, pegged to 9.5x FY25F PE or +1SD above its historical three-year PE range.
• Key Catalysts:
  • Higher-than-expected ship charter rates and vessel utilisation.
  • Award of new ship chartering contracts.
  • Higher value of repair projects during the year.

Key Financials and Projections

Source: Marco Polo Marine, Bloomberg, UOB Kay Hian

Investment Insight

Marco Polo Marine’s strategic positioning in the renewable energy sector, bolstered by its robust financial health and ongoing expansion in ship chartering and shipyard services, makes it a compelling investment opportunity. With its growth plans in South Korea and Japan and the expected revenue boost from new vessels and shipyard capacity expansion, MPM is well-positioned to capitalise on the rising offshore wind market.

Target Price: S$0.072 | Upside: +34.6% | Recommendation: BUY

Next immediate techincal resistance:$0.061

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