MARCO POLO: Ouch! This stock surrenders year's 37% gain. But analyst says there's much upside from here

THE CONTEXT • Marco Polo Marine's stock is down 27% to 5.2 cents since touching 7.1 cents in mid-May. This brings it back to where it started 2024 -- which means the 37% gain made this year has disappeared into thin air. Photo: Marco Polo• Why? As it turned out, Marco Polo's 3QFY24 (ended June 2024) business ran into some hiccups. (Which business doesn't at some point or other?)  • One issue it revealed was the delivery of the CSOV it is building will be delayed by approximately 4 months. This means Marco Polo will see a delay in the start of charter income from the vessel. In addition, there could be liquidated damages to pay to the charterer. • Meanwhile charter rates continue to be buoyant due to an industry shortage of vessels (owing to a lack of an appetite by banks to finance newbuilds) while demand is rising. • Other vessel owners serving the oil & gas industry and offshore wind projects, such as Nam Cheong and Atlantic Navigation, are riding the waves too. Read Maybank KE's latest take on Marco Polo below ....

Excerpts from Maybank KE report
Analyst: Jarick Seet

Marco Polo Marine (MPM SP) -- A minor bump

Expect 3rd-party repair volumes to rebound in FY25E

There were fewer 3rd-party repair works in 3QFY24 as one of its dry docks was occupied by its CSOV, construction of which has been delayed.

This also caused a shortage of staff to work on 3rd-party repairs.

As a result, this is likely to affect 2H profit.

But we expect these issues to be resolved by end-FY24E in Sep’24, and in FY25E it should see a full ramp up of shiprepair volumes, especially with expansion of its 4th dry dock, which could see revenue rise 25% (with revenue recognition from 2H25E onwards).



New vessels – to construct, build and own

MPM’s subsidiary, PKR Offshore, in Taiwan signed an agreement to charter CTVs in APAC to support windfarm customer Siemens Gamesa’s offshore wind projects in Taiwan and South Korea.

We expect MPM to start supplying 2 CTVs by end-2024 and eventually grow to a fleet of 10-15 CTVs within 4- 5 years.

MPM will also increase its fleet of anchor handlers, which could be used for the O&G and windfarm space.

We also expect more shipbuilding jobs for offshore vessels for other customers in FY25E

Long-term growth trend intact Jarick Seet, analystWe believe MPM has strengthened its strategic relationship with Vestas, especially in Taiwan, and Vestas should remain a core charter partner. Key catalysts include: 1) potential new vessels with long-term contracts with Vestas, and new clients. 2) completion of construction of CSOV, and 3) strong FY25E earnings growth. Trading at just 7.4x FY24E P/E, MPM remains undervalued vs global/regional peers at 15x and 25x on average.

Full report here