Marco Polo Marine - UOB Kay Hian 2022-06-17: Beneficiary Of Higher Activity In The Offshore Sector


Marco Polo Marine - Beneficiary Of Higher Activity In The Offshore Sector

  • The rationalised oil & gas offshore support industry has shown resilience during the COVID-19 pandemic. Channel checks suggest vessel utilisation has been improving, helped by minimal newbuilds and increased offshore activity in the region.
  • Marco Polo Marine (SGX:5LY) will benefit from positive operating leverage from higher charter and utilisation rates and a lean operating structure. Maintain BUY rating on Marco Polo Marine with a higher target price after rolling forward the valuation base year to FY23.

Increased offshore activity driving charter rates.

  • Increased activity in the oil & gas industry has driven up vessel charter rates and utilisation, since the global economic resumption following the end of COVID-19 pandemic lockdowns towards late 20. Bullish expectations driven by elevated crude oil prices above US$100 have also resulted in oil majors looking to increase production in the commodity. This translated to higher capex towards reactivating offshore production platforms and further raised industry utilisation for offshore supply vessels (OSV).
  • Furthermore, the nascent offshore wind farm market in Southeast Asia, particularly in Taiwan, has taken up supply of OSVs for vessel operators repositioning towards the relatively longer term charter contracts.
  • Minimal newbuilds on smaller-sized vessels provide support to dayrates. The lack of investment in the offshore oil industry since 2014 is expected to lead to upward pressure on utilisation and dayrates of support vessels going forward. Industry utilisation rates have begun to rise since 2H21 from higher demand due to the confluence of factors listed above.

Improving financials and diversification efforts pulling through.

  • In 1HFY22, Marco Polo Marine reported a 47.8% y-o-y jump in core EBITDA to S$5.8m. The positive set of financials came on the back of higher revenue of S$27.6m (+30.9% y-o-y), attributed to increased fleet utilisation and charter rates, as well as a rise in repair projects under the ship building & repair segment. Additionally, gross margin expanded to 29.6% (1HFY21: 23.8%) from more activity at the shipyard.
  • The shift away from supporting the oil & gas industry towards the renewable energy segment has been successful for Marco Polo Marine. Currently, 5 out of 13 OSVs owned by Marco Polo Marine are chartered within the offshore wind farm projects in Taiwan.

Operating expenses already lean, primed for positive operational leverage.

  • Marco Polo Marine's restructuring efforts carried out in FY17 have resulted in improved profitability, with higher gross margin and a reduction in administrative expenses.
  • Going forward, we believe margins should remain elevated due to improved sector dynamics after the 2014 oil crisis, as well as management’s focus on increasing its share in the offshore windfarm market.

Debt-free and assets marked at historical low.

  • Closing in on the 5-year mark since a level of support for our valuation.

Growing recurring income from shipyard.

  • Apart from the ship chartering revenue of S$17.1m which constituted 62% of 1HFY22, Marco Polo Marine derived customers.

Earnings forecast maintained, target price up

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-06-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.043 UP 0.036