Analysts remain positive on Marco Polo Marine 5LY after the group’s results for the 1QFY2024 ended Dec 31, 2023, surpassed expectations.
The group reported revenue of $29.1 million for the quarter, 22.8% higher y-o-y, while gross profit surged by 75.8% y-o-y to $11.6 million as the group’s fleet of offshore supply vessels (OSVs) saw higher charter and utilisation rates.
UOB Kay Hian analysts Heidi Mo and John Cheong have kept their “buy” call as Marco Polo Marine’s revenue and gross profit stood at 20% and 22.1% of their respective full-year forecasts.
“This is above expectations as 1H is a traditionally quieter monsoon period for Marco Polo Marine, with 1Q forming 10% - 15% of full-year gross profit over the past two years (disclosed),” they write in their Feb 16 report.
“Gross profit margin (GPM) saw a marked y-o-y improvement of 12.1 percentage points to 39.9%, primarily from higher average charter and utilisation rates of offshore support vessels (OSVs),” they add.
The analysts also see turning tides for the group with tailwinds in the business such as a favourable OSV market outlook with higher offshore activity.
According to Mordor Intelligence, the OSV market in the Asia Pacific (APAC) is expected to record a compound annual growth rate (CAGR) of over 7% from 2022 to 2027, the analysts note.
“According to Research Nester, the APAC region is estimated to be the second largest OSV market, with the global OSV market expected to surpass US$27 billion ($36.35 billion) by 2035,” they add. “With its successful expansion into Taiwan and Japan, followed by its partnership in South Korea, Marco Polo Marine stands to benefit from servicing the growing APAC offshore wind market.”
The stabilisation of China’s reopening will also allow the group to capture a growing demand for ship repairs and shipbuilding and achieve top-line growth.
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Marco Polo Marine’s new 240m-long Dry Dock 4 is expected to be completed by the 1QFY2025. The new dry dock will increase its ship repair capacity by up to 25%. The group has also successfully secured several new build contracts for vessel construction to be delivered up till 2HFY2024, ensuring sustained shipyard utilisation levels, the analysts note.
In addition, Marco Polo Marine is tipped to benefit from the growing renewable market upon the deployment of its new commissioning service operation vessel (CSOV). The CSOV is designed to provide charter services in Taiwan, Japan and South Korea and was already 34% completed as of 4QFY2023.
“From Marco Polo Marine’s recent Vestas framework agreement, we understand that the CSOV will be deployed over three years at an agreed utilisation rate once the vessel is fully constructed. This will provide medium-term revenue visibility for Marco Polo Marine’s ship chartering segment,” write Mo and Cheong. “As a shortage of such vessels and increased construction of new projects continues to drive up both utilisation and charter rates, the CSOV’s expected completion in 3QFY2024 is timely for Marco Polo Marine’s growth.”
At the end of its FY2023, the group displayed excellent cash management with a net cash position of $61 million, providing a “comfortable level of support” for the analysts’ valuation.
After increasing their GPM estimates by 2 percentage points, 1.5 percentage points and 1.5 percentage points for the FY2024, FY2025 and FY2026 respectively, Mo and Cheong’s earnings forecasts are now 9%,7% and 7% higher at $29 million, $31 million and $36 million respectively. Their gross profit estimates have increased by 4% - 6% over the same period.
Mo and Cheong have also increased their target price estimate to 7 cents from 6.6 cents previously after changing their valuation methodology to P/E from P/B.
“[The move comes as] Marco Polo Marine has demonstrated its ability to generate sustainable profits. The valuation peg of 9.0 times FY2024 P/E is +2 standard deviations (s.d.) above its historical three-year P/E range, on the back of higher charter rates and vessel utilisation rates. Marco Polo Marine currently trades at an attractive 7 times FY2024 P/E (5 times ex-cash),” they write.
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RHB Bank Singapore analyst Alfie Yeo has also kept his “buy” call with a lifted target price of 7.3 cents from 6.7 cents before.
“We remain positive on Marco Polo Marine as it remains in a sweet spot to deploy and operate its first CSOV by end FY2024, in an environment where such vessels (used to build offshore windfarms) are in short supply. Meanwhile, earnings are expected to remain buoyant, on the back of firm OSV demand for ship chartering and new customers for its shipyard division,” says Yeo in his Feb 19 report.
Like his peers at UOB Kay Hian, Yeo also sees tailwinds for the group, with its chartering business continuing to be in support of offshore oil and gas projects especially in Southeast Asia, as well as wind farms in Taiwan.
Yeo also expects to see a more stable outlook for the group’s shipyard going forward with its target to increase ship repair and maintenance orders for the shipyard division through new customers, especially local shipowners in Indonesia.
“Newbuild contracts secured include the construction of barges for delivery until as late as 2HFY2024,” says Yeo. “Marco Polo Marine’s CSOV is targeted for completion by the end of FY2024 and we expect meaningful contribution from FY2025.”
Yeo has also raised his earnings estimates by 7% to 12% for the FY2024 to FY2026 as Marco Polo Marine’s 1QFY2024 revenue and margins outperformed his estimates slightly.
“We now ascribe a stronger gross margin assumption as we now see sustainably higher rates, due to the demand for vessels vis-à-vis limited supply in the market. The ship chartering segment is expected to drive growth going forward – from its existing fleet in the oil & gas segment in FY2024, and the new CSOV from FY2025,” he says.
As at 11.19am, shares in Marco Polo Marine are trading flat at 5.5 cents.
