RHB Bank Singapore is keeping its “buy” call on Marco Polo Marine 5LY , which it sees as being in a “sweet spot”.
“We maintain an upbeat outlook on Marco Polo Marine’s long-term earnings growth,” says analyst Alfie Yeo, who has also given a higher target price of 6 cents from 5 cents previously. The target price has a 0% discount or premium to its intrinsic value as the company’s environmental, social and governance (ESG) score of 3 is on par with RHB’s country median. Yeo will be taking over coverage of this company moving forward.
“[Marco Polo Marine] remains on track to build, own and operate its first commissioning service operation vessel (CSOV) by December 2023 or 1QFY2024. Due the shortage of such vessels (which are used to build offshore windfarms), charter rates should be attractive. As Marco Polo Marine is one of a small handful of CSOV owners, it should be able to capitalise on the demand for such vessels,” he adds.
To this end, the analyst sees the company’s CSOV segment to drive its earnings growth on the back of improvements in its core operations of shipyard and ship chartering services.
“We forecast an 18% earnings growth compound annual growth rate (CAGR) for FY2022 – FY2025, on the back of a 17% revenue growth CAGR to $137 million, mainly driven by the deployment of its CSOV from FY2024 onwards,” says Yeo.
During the 1QFY2023, Marco Polo Marine reported a higher revenue of $23.7 million, 95.9% higher y-o-y for the 1QFY2023 ended Dec 31, 2022. This was attributed to the strong demand for its vessels and higher ship repair volumes. It also reported a 153.8% y-o-y growth in its gross profit at $6.6 million for the quarter.
“Both charter and utilisation rates (now close to 90%) have increased, led by strong demand from the oil & gas and Taiwan offshore windfarm sectors. Its shipyard is benefiting from stronger demand for the installation of ballast water systems while utilisation rates (74%) remained steady, even with the extended capacity of Dry Dock 1,” the analyst notes.
“[Marco Polo Marine’s] gross profit margin (GPM) improved by 7.5 percentage points (ppt) to 28%, due to the pick-up in its utilisation rate,” he adds.
On this, Yeo has upped his earnings estimates for the FY2023 by 35% on better charter rates and utilisation assumptions. “[This is] given the momentum of improved utilisation and charter rates for its vessels, backed by firm demand by offshore windfarms and healthy ship repair volumes,” he writes.
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The analyst has also increased his FY2024 earnings estimate by another 9% to $20 million.
Further to this report, Yeo is positive on the outlook for the demand for the company’s offshore vessels.
“In the drive towards sustainability and green energy, countries in North Asia are building up their offshore windfarms to boost their green or renewable energy initiatives. According to the Global Wind Energy Council’s (GWEC) Offshore Report in 2022, global new offshore installations are forecasted to increase at 6.3% CAGR from 2021 to 28,589 MW in 2026,” Yeo points out.
“Based on the pipeline and the outlook for building offshore windfarms in Asia, the market is currently facing a shortage of tier-1 CSOVs, with only [around] 10 now operating (mainly deployed in Europe), while another 30 or so are on order,” he adds.
On the back of his positive estimates, the analyst is careful to note that these are based on Marco Polo Marine’s improved charter rates, stronger utilisation rates, and the successful deployment of its CSOV over the next two years.
“Any underperformance in these aspects would present a downside risk to our earnings estimates and target price,” he says.
Shares in Marco Polo Marine closed at 4.3 cents on March 31.
