Excerpts from RHB report
Analyst: Jarick Seet
| Initiate coverage with BUY and a DCF-based TP of SGD0.041, 33% upside. We believe that Marco Polo Marine’s diversification into servicing the renewable energy (RE) sector will bear fruit in the next 1-2 years.
As such, we expect to see an earnings rebound, and the group to record a turnaround back to strong profitability in the next 2-3 years.
RE: A new significant growth area. Management has been actively diversifying and expanding MPM’s activities beyond the O&G industry.
As of 1H21, 20% of its utilised vessels are working on offshore windfarm projects in Taiwan.
It has an edge there as:
|i) The vessels working on the Taiwanese windfarm projects must not be made in China;
ii) the ages of its ships are also below 12 years (80-90% of the OSVs in the region that are below 12 years old are built in China);
iii) MPM’s vessels are more than well-equipped, as offshore O&G activities have more stringent requirements.
We believe RE is a potential major growth driver – especially with the influx of investments coming into this space.
We believe that MPM will expand its operations in Taiwan, and will likely look to double its chartering fleet in this space by end-1Q22 – then have at least 50% of its fleet servicing the RE sector by 4Q22.
We expect the utilisation rate of its chartering fleet – which is around 60% currently – to rise to about 80% by 2H22. This would also lift its charter rates, thereby further improving its margins and profitability.
Surging demand for shipbuilding, repair, and upgrades. MPM’s shipyard division has seen strong growth, due to the resumption of O&G activities globally and its foray into RE. In 1HFY21 (Sep), its shipbuilding and repair revenue surged 34.5% YoY, and we expect this strong growth to extend into FY22.
To cope with surging demand, it aims to expand the area of its Dry Dock 1 from 150m which will increase capacity by 20% by 2QFY22.
However, this recovery has been dampened by the COVID19 pandemic. That said, the WTI crude price surged to a high of USD72.00 per barrel as of Jun 2021 – as the world is recovering from the pandemic, and O&G activities gradually pick up again.
As such, MPM has also seen an uptick in ship charter utilisation rates and its shipyard operations.
We believe that the continued recovery will be positive for MPM, across all its business segments. With the pivot towards RE, we are confident MPM will record a strong turnaround in numbers.
It is also trading below its greatly impaired NAV, and white knights’ and creditors’ entry price (which ranges between 3.2 and 3.3 SG cents). A rare net cash turnaround story correlated with the O&G sector’s recovery. The O&G industry has been recovering since the oil price crash in 2014-2016.
Full report here