Maybank Securities analyst Jarick Seet has kept his “buy” call on Marco Polo Marine 5LY at an unchanged target price of 8 cents.
In his Sept 16 report, Seet believes that Marco Polo is deeply undervalued, noting that its fleet alone is worth around $195 million, close to its market cap with net cash and excluding its yard.
His valuation is based on peer Atlantic Navigation’s (AN) recent vessel sales of US$183 million ($236.9 million).
“But Marco Polo’s fleet is much younger with an average age of seven years,” writes Seet.
Meanwhile, in the 3QFY2024 ended June, Marco Polo processed fewer third-party repair works as one of its dry docks was occupied by its commissioning service operation vessel (CSOV), of which construction has been delayed.
This has led to a shortage of staff to work on third-party repairs, and as a result, Seet notes this is likely to affect second half profit.
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He adds: “But we expect these issues to be resolved by end-FY2024 in September, and in FY2025 it should see a full ramp up of ship repair volumes, especially with expansion of its fourth dry dock, which could see revenue rise 25%, with revenue recognition from 2HFY2025 onwards.”
Marco Polo’s Taiwan subsidiary, PKR Offshore, has signed an agreement to charter crew transfer vessels (CTVs) in the Asia Pacific (APAC) to support wind farm customer Siemens Gamesa’s offshore wind projects in Taiwan and South Korea.
“We expect Marco Polo to start supplying two CTVs by end-2024 and eventually grow to a fleet of 10 to 15 CTVs within four to five years.”
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The group will also increase its fleet of anchor handlers, which could be used in the oil and gas (O&G) and windfarm space.
“We also expect more shipbuilding jobs for offshore vessels for other customers in FY2025,” continues Seet.
The analyst also believes that Marco Polo has strengthened its strategic relationship with Danish wind turbine maker Vestas, especially in Taiwan.
He concludes: “Trading at just 7.4 times FY2024 price-to-earnings ratio (P/E), Marco Polo remains undervalued vs global and regional peers at 15 times and 25 times on average.”
Key catalysts for Marco Polo’s re-rating include potential new vessels with long-term contracts with Vestas and new clients, the completion of construction of its CSOV and lastly, strong FY2025 earnings growth.
Meanwhile, upside swing factors noted by Seet include rising charter rates and utilisation of vessels, which should continue to boost net profit after tax (NPAT) growth by 30% y-o-y in FY2024, contributions from new CSOVs which should bump up FY2025 NPAT growth.
Other factors include a potential new long-term contract which could lead to acquisitions to service offshore renewable players around the region, and the group’s shipyard expansion which will lead to an increase in capacity to capture the high demand of its repair business.
Conversely, downside factors include a global recession or slowdown which could lead to a drop in charter rates and demand for vessels, a decline in oil price which will affect sentiment in the vessel chart and building sector, as well as conflict between China and Taiwan, which could impact charter operations.
As at 12.18 pm, shares in Marco Polo are trading flat at 5.4 cents.
