CGS International analysts Meghana Kande and Lim Siew Khee have maintained their “add” call on Mermaid Maritime DU4 as the company’s 3QFY2024 ended Sept 30 core net profit of US$3.8 million ($5.1 million) stood in line with the analysts’ estimate. The figure excludes the impact of foreign exchange (forex), which stood at a loss of US$2.7 million.
Excluding the loss, Mermaid Maritime’s core ebit margin in the 3QFY2024 improved by 60 basis points q-o-q on a 100 basis point increase in gross margin and a 60 basis point drop in selling, general and administrative (SG&A) expense as share of revenue.
On a reported basis, however, Mermaid Maritime’s net profit missed expectations due to unfavourable forex movements of the US dollar (USD) against the Thai baht (THB), and lower-than-expected contribution from the company’s Zeaquest joint venture (JV) due to ending of a key project with PTTEP in 3Q2024.
However, the analysts believe that the forex impact should reverse with the USD rebounding by 7.5% against the THB since the end of September. As such, they have pencilled in a forex gain of US$1.5 million in the 4QFY2024.
The analysts also note Mermaid Maritime’s 3QFY2024 revenue fell on a q-o-q basis although its topline rose by 76.2% y-o-y to US$150.9 million ($202.9 million).
“3QFY2024 revenue was down slightly q-o-q on completion of decommissioning contracts in the UK and Thailand, partially offset by stronger cable-laying,” note Kande and Lim in their Nov 16 report. The decommissioning charters, which is expected to be renewed only from March 2025, was due to a seasonal slowdown in the fourth quarter from poor weather in the region. Mermaid Maritime’s owned vessel, Resiliant, also finished working on a decommissioned project in Thailand, the analysts add.
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Furthermore, Mermaid Maritime’s quarterly revenue was affected by lower-than-expected utilisation from its subsea inspection, repair and maintenance (IRM) fleet, at a rate of 87%, down from 100% in the 3QFY2023. The lower rate was attributed to the dive support vessel (DSV), Mermaid Endurer, transitioning between two projects in Saudi Arabia and Qatar, say Kande and Lim.
While the analysts have maintained their gross margin estimates for FY2024 to FY2026, they have lowered their revenue forecasts on lower fleet utilisation and decommissioning order assumptions.
They have also lowered their net profit forecasts for FY2024 to Fy2026 by 11% to 28% on adjusted topline forecasts.
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Accordingly, their target price has been reduced to 16 cents from 20 cents previously.
Based on their estimates, Mermaid Maritime is trading at 8.9 times its FY2025 P/E, representing a 32% discount compared to its global peers’ 13.1 times P/E.
“We think the recent share price weakness is a buying opportunity as Mermaid Maritime continues to benefit from the tight vessel supply environment,” they write.
