UOB Kay Hian analysts Heidi Mo and John Cheong have maintained their “buy” call on Marco Polo Marine 5LY with a higher target price of 8.6 cents from 7 cents previously.
The analysts’ higher target price comes just after its Feb 16 report, where they increased their target price estimate to 7 cents from 6.6 cents after changing their valuation methodology to P/E from P/B.
“The rise in target price is due to the rerating of its long-term P/E mean multiple. Therefore, we have raised our P/E peg multiple to 11 times FY2024 P/E ([from] 9 times FY2024 P/E previously), based on +2 standard deviations (s.d.) above its historical three-year P/E range,” write Mo and Cheong in their March 22 report.
The valuation peg is applied to the analysts’ formulations on the back of higher charter rates and vessel utilisation rates, they add.
The analysts also note that the company will continue to enjoy good demand and favourable charter rates for its offshore support vessels (OSVs), which are at a nine-year high. The tailwinds stem from the pickup in oil and gas activities and favourable oil prices, note Mo and Cheong.
In addition, the analysts have observed a rapid rise in offshore wind energy projects, especially in Asia Pacific (APAC) where the company operates.
“According to the Global Wind Energy Council (GWEC), the global offshore wind industry is projected to add 380GW of capacity by 2032, with almost 50% of the growth arising from the APAC region,” they say.
As such, the company is likely to enjoy higher demand for its OSVs and, in turn, more favourable charter rates moving forward.
“From the Offshore Intelligence Network, we note that Marco Polo Marine's ship chartering revenue growth is largely in line with the rising average charter rates,” the analysts add.
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Marco Polo Marine’s securing of the Asia-Pacific crew transfer vessel (CTV) framework agreement with Siemens Gamesa on March 21 will benefit the company as well. The maiden CTV charter in Korea will start in 4Q2024, marking its successful entry into a new market, note Mo and Cheong.
“We apply this valuation peg on the back of higher charter rates and vessel utilisation rates. Marco Polo Marine currently trades at an attractive 7 times FY2024 P/E (5 times ex-cash),” say the analysts referring to the offshore and marine (O&M) counter’s share price of 6.2 cents at the time.
Shares in Marco Polo Marine closed 0.1 cent higher or 1.67% up at 6.1 cents on March 25.
