Lim & Tan Securities analyst Nicholas Yon has initiated coverage on Marco Polo Marine 5LY with a “buy” call as the company is currently “firing on both engines”. Its ship chartering segment is seeing tailwinds with high rates while its shipbuilding segment is backed by a substantial order book pipeline that ensures visibility in revenue for the coming years, Yon writes.
“There continues to be a mismatch of demand and supply in anchor handling tug supply (AHTS) vessels, even in 2024, despite the influx of new builds entering the market, leading to a continued surge in offshore support vessel (OSV) charter rates,” the analyst points out.
With this, Marco Polo Marine’s strategy of opting for relatively shorter renewal rates gives the company an advantage to recalibrate its pricing more frequently, he notes. Furthermore, the move will enable the company to capitalise on the ongoing upswing. This “strategic manoeuvre” is boosted by Taiwan’s commitment to the wind farm market, which further sustains the company’s position in the market as well as its profitability.
On the company’s “robust” shipbuilding segment thanks to its high order book, Yon sees that the stability is further bolstered by the recent addition of the framework agreements with Vestas and Siemens. Marco Polo Marine signed a three-year framework agreement with Vestas for the deployment of its new commissioning service operations vessel (CSOV) in November 2023 while it secured the Asia Pacific (APAC) crew transfer vessel (CTV) framework agreement with Siemens Gamesa for projects spanning Taiwan and Korea in March this year.
Plus, the notable uptick in ship repair utilisation, with upward-trending utilisation rates, is bound to help the company’s shipbuilding segment.
“To address the growing and sustained demand, Marco Polo Marine is proactively expanding its infrastructure by constructing a fourth dock, slated to become operational by 1H2025 - This will augment Marco Polo Marine’s repair capacities by another impressive 25%,” says Yon.
Another upside for the company is its healthy net cash position of $60.8 million, which lets it capitalise on the ongoing upcycle in the oil and gas (O&G) industry.
“Since undergoing restructuring in 2017, Marco Polo Marine has emerged as a significantly more robust and well-structured company,” says Yon, who adds that following its turnaround in 2021, the company has showed its strengthened financial position and confidence by reinstating its dividends for the FY2023 ended Sept 30, 2023.
“This decision not only underscores the company’s improved performance but also signals brighter times ahead, reflecting Marco Polo Marine’s renewed stability and potential for sustained growth,” he continues.
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Yon has also given Marco Polo Marine a target price of 8.3 cents, representing an upside of 25.8% to the company’s actual share price of 6.6 cents as at his report dated April 5.
“Marco Polo Marine today trades at 8.7 times FY2024 P/E (ex-cash FY2024 P/E: 6.5 times) and 1.3 times P/B, which is undemanding compared to [its] peers’ valuations of 13.9 times FY2024 P/E,” says the analyst.
“Given the higher potential of the current upcycle, we think that Marco Polo Marine can trade up to at least 11.0 times P/E, representing a 20% discount to the previous peak and current peers”, he adds.
Shares in Marco Polo Marine closed 0.1 cent higher or 1.52% up at 6.7 cents on April 5.
