Excerpts from UOB KH report
Analysts: Heidi Mo & John Cheong
|Encouraging Times Ahead|
|Marco Polo Marine (MPM) has improved its financials on higher fleet charter and utilisation rates, as well as contributions from its Taiwan-based JV and Indonesian subsidiary acquired in FY22.
With this, together with its strong balance sheet and expansion efforts in the offshore windfarm sector with the construction of its CSOV, MPM is poised to benefit in the coming years.
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• Increased oil & gas and offshore windfarm activity driving charter rates. The pickup in oil & gas activity, from exploration and production to decommissioning of rigs, is presenting opportunities to offshore support vessels (OSV) market players with oil prices remaining high.
“Tight access to bank finance has led to limited possibility of newbuilds. This squeezes supply of available quality OSVs, which will drive further increases in charter rates and utilisation levels moving forward.”
Offshore wind in the Asia-Pacific (APAC) region is also progressing ahead, with more large-scale projects forecasted. Additionally, per Mordor Intelligence, the APAC OSV market is expected to record a CAGR of >7% from 2022 to 2027, putting MPM in a favourable position given its operating markets. In 1HFY23, we have already seen a 65% yoy increase in average charter rates, and an 8ppt yoy increase in Marco Polo Marine’s (MPM) vessel utilisation rates to 66%.
• Minimal newbuilds on smaller-sized vessels provide support for dayrates. While increasing demand typically leads to newbuilding, tight access to bank finance has led to limited possibility of newbuilds. This squeezes supply of available quality OSVs, which will drive further increases in charter rates and utilisation levels moving forward. Industry utilisation rates have continued to rise since 2H21 from higher demand due to the confluence of factors listed above.
• Commendable growth across both business segments undermined by one-off items. In 1HFY23, MPM reported a 167% yoy jump in core EBITDA to S$15.5m. This is driven by the rise in revenue in the ship chartering segment from S$10.5m to S$24.5m (+133.3% yoy), as a result of S$12.9m in revenue consolidated from both its Indonesian subsidiary PT BBR Tbk (PT BBR) and Taiwan-based PKR Offshore, as well as higher average charter rates and utilisation rate for its fleet.
Its ship building & repair operations also registered a significant 83.6% yoy revenue growth to S$31.4m, owing to higher contract values of repair projects as well as new shipbuilding projects.
Upon adjusting for one-off items:
|a) S$5.2m in remeasurement gain on previously held equity interest in PT BBR in 1HFY22,
b) S$4.2m in reversal of impairment loss on receivables due from PT BBR in 1HFY22, and
c) S$2.6m in unrealised foreign exchange loss in 1HFY23,
we see that core net profit has in fact surged 372% yoy from S$1.8m to S$8.5m.
• Continued development in renewable energy sector and newbuild contracts secured till 1HFY24. MPM has previously announced its plans to build, own and operate a new Commissioning Service Operation Vessel (CSOV), as a shortage of such vessels in the market is observed. Demand for CSOVs is on the rise, with increased construction of new projects and projects near their final commissioning dates.
According to management, the CSOV is at 13% completion as at end-1HFY23 and is expected to be completed in 1QFY24, in time to meet the increasing demand for support vessels in Asia’s offshore windfarm industry. The group has also successfully secured several new build contracts for the construction of barges to be delivered up till 1HFY24, ensuring sustained shipyard utilisation levels. As at 2Q23, the shipyard was operating at a higher average utilisation rate of 84% (1Q23: 74%%).
• Healthy cash balance provides buffer. MPM has shown excellent cash management, with a strong cash position of S$53.0m as at end-1HFY23 (FY22: S$53.5m). This provides a comfortable level of support for our valuation.
• We have raised our FY23-25 revenue forecasts by 41-55%, on higher charter rates.
• Accordingly, our net profit estimates have increased 2%/15% to S$17.4m and S$19.7m for FY24 and FY25 respectively.
• Upgrade to BUY with a 25% higher target price of S$0.060 (S$0.048 previously).
We value MPM at 1.3x FY23F P/B, in line with +2SD of its historical five-year average on the back of improving charter rates and vessel utilisation rates.
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