Marco Polo Marine - UOB Kay Hian 2021-07-14: Strong Tailwinds In Charter Rates, Vessel Utilisation & Ship Repairs

MARCO POLO MARINE LTD. (SGX:5LY) | SGinvestors.io MARCO POLO MARINE LTD. (SGX:5LY)

Marco Polo Marine - Strong Tailwinds In Charter Rates, Vessel Utilisation & Ship Repairs

  • The rationalised oil & gas offshore support industry has shown resilience over the COVID-19 pandemic. Channel checks suggest vessel utilisation has been improving, helped by minimal newbuilds and more vessels on lay ups.
  • We like Marco Polo Marine (SGX:5LY) for its lean operations following completion of its corporate restructuring efforts. A successful transition to new revenue sources would be a key turning point for Marco Polo Marine.
  • Maintain BUY with target price raised to S$0.036.



WHAT’S NEW


Rationalised vessel chartering industry.

  • Since the oil crisis in 2014, Clarksons data suggests that vessel charter rates have rationalised, helped by minimal newbuilds and more vessels on lay ups. Furthermore, rising vessel utilisation from demand in the infrastructure and renewable energy sectors in Southeast Asia has benefitted the remaining players in the offshore support industry.
  • In 1HFY21, Marco Polo Marine (MPM) reported an 88% y-o-y jump in core EBITDA to S$4.0m. The positive set of financials came on the back of higher revenue of S$21.1m (+13.8% y-o-y) attributed to the commencement of two new construction projects under its ship building division and increased ship repair jobs, as well as gross margin expansion to 23.8% (1HFY20: 18.4%) from the absence of one-off reactivation costs.

Diversification efforts pulling through.

  • The shift away from supporting the oil & gas industry towards the renewable energy segment has been successful for Marco Polo Marine.
  • Currently, close to 20% of Marco Polo Marine’s charter fleet of 11 offshore support vessels (OSVs) now supports offshore windfarm projects in the Asia Pacific region. The diversification provides a new utilisation base for Marco Polo Marine’s vessels, particularly on the growing demand specifically from the offshore wind energy industry in Asia, which is in its nascent stage where structures are installed in shallow waters with depth of up to 50-60m. This presents a tremendous opportunity for Marco Polo Marine, whose fleet specialises in support in those depth regions.

Tailwind from rising crude oil prices.

  • In the past six months, the Brent forward the two key metrics for Marco Polo Marine's charter rates and vessel utilisation.


STOCK IMPACT


Operating expenses already lean, primed for positive operational leverage.

  • The restructuring efforts carried out by Marco Polo Marine in positive territory of 8%.
  • Going forward, we believe margins should remain positive due to improved sector dynamics post the 2014 oil crisis as well as effective cost control.

Clean from debt and balance sheet impaired.

  • Of the S$60m cash at the bottom of the industry downturn, which provides a comfortable level of support for our valuation.

Growing recurring income from ship repairs.

  • Marco Polo Marine's 1HFY21 revenue from ship dry docks in mid-Jun 21 is a strong signal that workload in the ship repair division is expected to grow.


EARNINGS REVISION/RISK

  • No changes to our forecasts.


VALUATION & RECOMMENDATION


Maintain BUY on Marco Polo Marine with raised target price of S$0.036.



SHARE PRICE CATALYST

  • Higher-than-expected vessel utilisation rates.
  • Award of new ship chartering contracts.





Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-07-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.036 UP 0.02



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