Maybank Securities analyst Jarick Seet has initiated a “buy” call on Marco Polo Marine 5LY with a target price of 8.8 cents. Seet’s target price represents an upside of 54% from the stock’s closing price of 5.9 cents as at March 20 and is based on 11 times Marco Polo Marine’s estimated FY2024 P/E.
“Marco Polo Marine, a long-time operator in the chartering and shipyard business, is benefiting from the surge in demand and charter rates due to competition for vessels from the oil and gas (O&G) and renewable energy sectors,” writes Seet in his March 20 report.
Due to limited investments since the crash in oil prices in 2016 and the lack of bank financing, the number of vessels has been unable to keep up with the demand surge due to competition from the renewable energy sector.
As such, charter rates have been rising by 5% to 15% per annum (p.a.) for the past three to four years, thus benefitting the company. Thanks to the higher charter rates, Marco Polo Marine has seen its gross margins improve to 36% in FY2023, up from 14.3% in FY2020. Its net margins have also improved to 20.3% in FY2023 from -29.9% in FY2020.
Yet, there is still more room for growth as Seet expects charter revenue to continue to grow by 25% y-o-y for FY2024 and FY2025.
Commissioning service operation vessels (CSOVs) should also be a key contributor to Marco Polo Marine’s earnings in FY2025. The construction of its CSOV should be completed by 3Q2024 and begin operations for its wind farm client, Vestas, in October 2024 or FY2025. The vessel will be deployed at offshore wind farms in Taiwan, Japan and South Korea over three years with a minimum utilisation commitment p.a, notes Seet.
The analyst expects the CSOV’s utilisation to be around 80% for FY2025 and FY2026, which should contribute about $4 million - $5 million net profit annually or about 20% y-o-y net profit after tax (NPAT) growth.
Looking ahead, Seet sees potential new vessels with long-term contracts with Vestas, as well as attracting new clients as new catalysts for the company. Naturally, a strong set of earnings for the 1HFY2024 ending March 31, as well as the building completion of CSOV, are also positive factors.
“We believe Marco Polo Marine has strengthened its strategic relationship with Vestas, especially in Taiwan, and Vestas will continue to be a core charter partner of Marco Polo Marine,” says Seet.
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At its current share price levels, Marco Polo Marine, which is trading at just 6.9 times its FY2024 P/E, remains “significantly undervalued” compared to its global and regional peers, which are trading at 15 times and 25 times on average.
Shares in Marco Polo Marine closed 0.2 cents higher or 3.51% up at 5.9 cents on March 20.
