MARCO POLO MARINE LTD. (SGX:5LY)
Marco Polo Marine - Oil & Gas Turnaround Play With Net Cash Balance Sheet
- MarcoPolo Marine has a net cash balance sheet with zero debt;
- Trading below significantly impaired NAV, and white knights’ and creditors’ entry price;
- Turnaround in FY21F (Sep) with a shift into renewable energy and wind farm projects.
MarcoPolo Marine - Company Profile
- Established in 1991, MarcoPolo Marine (SGX:5LY) was listed on the then-SGX SESDAQ in 2007. This reputable regional integrated marine logistics company is principally engaged in shipping and shipyard activities.
- MarcoPolo Marine's shipping business consists of the chartering of its OSV fleet, which are mainly made up of anchor-handling tug supply vessels (AHTS), as well as tugboats and barges.
- MarcoPolo Marine's shipyard business is engaged in ship-building, and providing ship maintenance, repair, outfitting and conversion services.
MarcoPolo Marine - Investment Highlights
Oil & gas activities picking up after a hiatus (since the oil price crash).
- With oil prices stabilising since the crash in 2014, activities across the whole oil & gas chain have been steadily recovering. Marco Polo Marine’s ship-chartering operations revenue grew 44% y-o-y in FY19, due to the improved utilisation rate of its fleet of OSVs. We understand that this trend is likely to continue, despite the growth of its fleet to eight vessels presently, from five in FY19.
- There are also two vessels left to be reinstated/upgraded, which should further boost the profitability of its ship-chartering business. Its shipbuilding and repair operations revenue declined by 10% y-o-y in 2019, mainly due to the absence of ship-building jobs. However, with the uplift in oil & gas activities, MarcoPolo Marine stands a solid chance of winning shipbuilding tenders this year – it has already participated by aggressively bidding for some of these tenders.
Diversifying into new growth areas – renewable energy (RE).
- MarcoPolo Marine is actively diversifying and expanding its activities beyond the oil & gas industry, including supporting the installation of submarine cables and offshore wind farm projects. Tapping on this core expertise, it is pivoting to the RE industry, providing customised solutions in the chartering, development, fabrication, and construction of bespoke RE assets for customers.
- MarcoPolo Marine has been actively pursuing contracts in the region. About 20% of utilised vessels are working on wind farm projects. In 2020, they secured shipbuilding contracts from Singapore Aquaculture Technologies (SAT) to construct two smart fish farms. Construction is set to be completed by the end of FY2021.
Trading below greatly impaired NAV, and white knights and creditors’ entry price.
- MarcoPolo Marine’s NAV per share was at 3.1 cents as at 30 Sep 2019, which was massively discounted after its debt restructuring exercise. This, in turn, was determined previously when oil & gas asset prices hit rock-bottom levels during the trough of the crisis. The white knights entered at an effective price of 3.2-3.3 cents during its latest debt restructuring exercise. At current share price levels, this is still well below the levels of the white knights’ costs, as well as the company’s NAV.
Operating EBITDA was positive in FY19; targeting to be PATMI- positive in FY21F.
- MarcoPolo Marine’s performance reversed from a loss of S$3.9m in FY18 to a positive EBITDA of S$2.4m in FY19. With a brighter outlook ahead, a return to profitability in FY20-21F is highly possible. This is a significant achievement, since MarcoPolo Marine almost went under in 2017.
MarcoPolo Marine - Company Report Card
Latest results.
- MarcoPolo Marine's FY20 revenue grew by 2% to S$30.8m, but PATMI losses further widened as a result of the poorer performance from the ship chartering segment, due to the impact of COVID-19. This was partially offset by an increase in margins from ship repair jobs undertaken.
Balance sheet/cash flow.
- As at end-FY20, MarcoPolo Marine’s net cash amounted to S$13m. We expect its net cash position to continue improving, as it continues to generate positive cash flow.
ROE.
- MarcoPolo Marine’s ROE was impacted by the downturn of the oil & gas sector, but we are confident that this will improve, due to the restructuring and the new ventures into RE.
Dividends.
- With a turnaround ahead, MarcoPolo Marine may look to set a dividend policy to reward shareholders in the near future.
Management.
- Sean Lee is the Group CEO and a key co-founder of MarcoPolo Marine. He is responsible for the overall management, daily operations and formulation of the company’s business direction, strategies and policies.
MarcoPolo Marine - Investment Case
Turnaround aided by move into RE.
- This net cash company, which survived the oil price crash years ago, may be on the verge of a comeback to profitability. MarcoPolo Marine returned to being EBITDA-positive in FY19, after a debt restructuring exercise in Feb 2018 – which led to a clean balance sheet. A continued pick-up in its ship-chartering and ship repair/building businesses should stand it in good stead to be in the black in FY21.
- See
- MarcoPolo Marine is trading well below its NAV of 3.1 cents, and could rerate strongly if profitability starts kicking in. It has also moved into a new growth area other than oil & gas, and has already started chartering ships for wind farm clients.
- MarcoPolo Marine (SGX:5LY) is one of the Top Singapore Small Cap Companies highlighted in RHB's 20 Jewels 2021 Edition.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2021-05-05
SGX Stock
Analyst Report
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