Analysts at UOB Kay Hian have downgraded Marco Polo Marine to “hold” with a higher target price of 4.8 cents from 3.8 cents previously on improving charter rates, better utilisation rate and expanded shipyard capacity.
In its Dec 7 report, the analysts note that Marco Polo’s business has stayed resilient amid the uncertain macro environment. In its 2HFY22 ended September, Marco Polo reported a 196% y-o-y jump in core ebitda to $18.1 million, mainly driven by the rise in revenue in the ship chartering operations segment in the same period.
Marco Polo’s expansion into the booming offshore wind farm sector has also helped the company to establish its presence in Taiwan, greatly contributing to its improved financial performance with about 40% of 5 of its 13 offshore support vessels (OSVs) chartered out for the market, the analysts add.
Since the end of the Covid-19 pandemic, vessel charter and utilisation rates for tugboats, barges and OSVs have been on the rise. Meanwhile, the ongoing geopolitical tensions are continuing to drive oil prices up to their strongest level in almost eight years.
The elevated crude oil prices during the year have also led to oil majors looking to increase production in the commodity. This resulted in higher capital expenditure towards reactivating offshore production platforms, further raising industry utilisation positively for OSV.
On top of this, Marco Polo was awarded more contracts in the shipyard business and higher-value repair projects during the year, as observed in the segmental revenue’s 59.2% y-o-y increase from $26 million in FY2021 to $41.4 million in FY2022, the analysts point out.
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Supported by minimal newbuilds and increased demand in Asia, Marco Polo’s vessel utilisation has been improving. The analysts note that the lack of investment in the offshore oil industry since 2014 is expected to lead to upward pressure on utilisation and day rates of support vessels going forward.
In September, Marco Polo announced its plans to build, own and operate a new Commissioning Service Operation Vessel (CSOV) as a shortage in such vessels in the market is observed. The CSOV is expected to be completed in 1QFY2024, with the management hoping to meet the increasing demand for support vessels required to service Asia’s offshore wind farm industry.
The company had also signed a memorandum of understanding with Japan’s offshore support vessel services provider “K” Line Wind Service, successfully extending its reach to the Japan market.
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The analysts further highlight Marco Polo’s “excellent” cash management, with a strong cash position of $53.5 million as at end-FY2022. “This provides a comfortable level of support for our valuation,” the analysts say.
UOBKH has raised its FY2023-FY2024 revenue estimates by 50%-62%, on higher margin assumptions and improving charter rates. Accordingly, its net profit estimates have increased to 125% and 141% to $15.2 million and $17 million for FY2023 and FY2024 respectively.
As at 10.38am, shares in Marco Polo are trading 0.1 cent lower or 2.12% down at 4.6 cents.
