Date: October 7, 2024
Broker: CGS International Securities Pte. Ltd.
Company Overview
Mermaid Maritime (MMT) is a Singapore-based company operating in the oil and gas sector, primarily providing services such as subsea and diving support operations. MMT is poised for growth due to higher global demand driven by rising oil prices and a tight supply of vessels.
Positive Outlook on Fleet Utilisation
During an investor call hosted on October 7, 2024, MMT’s management reaffirmed their optimistic outlook on fleet utilisation and future orders. The company expects fleet utilisation to remain above 80% in 2025 due to tight global vessel supply and increased demand driven by rising oil prices. MMT’s operations are predominantly in Qatar and the eastern region of Saudi Arabia, reducing its exposure to geopolitical risks in the Middle East.
Impact of Oil Prices on Day Rates and Margins
MMT is benefiting from the rise in oil prices, which has supported the development of key offshore regions such as Mozambique, Guyana, and the Asia-Pacific. The company expects the high demand and limited availability of vessels to maintain elevated day rates for its fleet.
MMT has been able to pass on higher costs to its customers by securing long-term contracts. Around 75% of its contracts are long-term, while 25% are maintained on a spot basis to take advantage of favorable day rates. Although margins may face short-term pressure due to the rising cost of chartered vessels, MMT expects to mitigate this by passing these costs to customers when signing new contracts.
Planned Capital Expenditure (Capex) on ROVs
To optimize operational costs, MMT plans to invest in four new remotely operated vessels (ROVs), which cost around US$3–3.5 million each. The company currently owns 14 ROVs and charters another 13. This expansion will be funded partly through bank financing and internal cash. No additional diving support vessels (DSVs) are planned for purchase due to high costs (US$150 million each) and the need for long-term visibility.
Dry-Docking Schedule and Long-Term Contracts
MMT has completed dry-docking for two of its vessels—Mermaid Endurer and Millennium 3—in 2024. The only major vessel scheduled for dry-docking in 2025 is the Mermaid Asiana, which will undergo its five-year special survey in February 2025, with the process expected to last 4–5 weeks. This duration is shorter than previous expectations due to the company’s shift to a new yard.
The company continues to favor long-term charters over purchasing new vessels. Its existing order book, valued at US$976 million, can be handled with its current mix of owned and chartered vessels.
Financial Performance and Stock Rating
MMT has shown robust financial growth, with revenues increasing from US$223.9 million in 2022 to a projected US$687.5 million in 2026. The company posted a net profit of US$9.59 million in 2023, which is expected to rise to US$24.0 million by 2026. MMT’s stock is currently rated “Add” with a target price of S$0.20, representing an 11.1% upside from its current price of S$0.18.
ESG Initiatives
MMT has been proactive in integrating environmental, social, and governance (ESG) considerations into its operations. The company has reduced its carbon intensity by 46% from 2019 to 2022 by optimizing energy usage and adopting advanced vessel technologies. However, there are still governance concerns, notably the lack of female representation on the company’s board. MMT aims to address this by potentially adding a female director by 2026.
Key Risks
The key risks to MMT’s outlook include potential geopolitical tensions, adverse weather conditions, prolonged dry-docking periods that could impact fleet utilisation, and the risk of order cancellations. Additionally, the company is monitoring the potential rise in greenhouse gas emissions due to its expanded fleet and reliance on Marine Gas Oil (MGO).
Conclusion
MMT is positioned well for growth amid favorable market conditions, with high vessel utilisation, strong financial performance, and plans for fleet expansion through ROV investments. The company remains focused on capturing long-term contracts while mitigating risks posed by geopolitical uncertainties and environmental challenges.
