Against the backdrop of an unpredictable macroeconomic outlook, Marco Polo Marine 5LY group CEO Sean Lee has begun pivoting the group’s business away from the cyclical nature of oil.
“We are very sensitive towards oil and the price of oil, and that affects realisations at the end of the day. But today, we are actually putting a lot more effort into windfarms. These kinds of projects do not suffer from the same effects,” says Lee.
Listed on the Singapore Exchange S68 ’s (SGX) mainboard since 2007, Marco Polo is a well-known player in the offshore space, operating its two business segments of ship chartering, and ship building and repair.
Having been impacted heavily by the pandemic-induced oil crash, the company has emerged from the challenging period.
In its latest 1HFY2024 ended March results, Marco Polo recorded earnings of $11 million, a 159.4% y-o-y improvement from $4.2 million a year ago.
Revenue was up 10% y-o-y to $61.6 million, due to the group’s ship chartering segment which achieved higher charter rates.
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Growth in chartering revenue
The chartering segment, whose fleet consists of maintenance work vessels, offshore supply vessels (OSVs), as well as tugboats and barges, saw revenue grow to $32.9 million in 1HFY2024 from $24.5 million in 1HFY2023 as its fleet of 14 OSVs achieved higher rates.
Lee says that charter rates will only continue to rise, due to the imbalance of a shrinking number of vessels and a growing market.
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He explains: “It’s not like in the past, where because rates were so good people just jumped into the business. People who didn’t understand the offshore business also invested in the assets and at the end of the day, this caused [oversupply]. Same with the banks; they’re not disinterested like they were in the past.”
“There are a few reasons why we don’t expect newbuilds to proliferate. First, although charter rates have improved, they have yet to come to a point where it is attractive for peo- ple jump into the space. The return on investment is also not sexy enough, and at the same time, interest rates have gone up quite a bit, so that in itself is an additional barrier. Third, people are still worried about whether the gamble is worth it, should there be another crisis,” continues Lee.
Meanwhile, revenue from Marco Polo’s shipyard segment declined 8.6% y-o-y to $28.7 million in 1HFY2024 due to the reopening of China’s shipyards, which in turn led to lower ship repair volume.
Lee says: “This is a very capital-intensive industry and you are dependent on ‘the best timing’ so there won’t be any oversupply situation anytime soon. Even if people start to place orders, construction takes about two years. The price of construction has gone up as well, by about 10% to 20%.”
Even with stable oil prices currently, Lee is cautious, as the industry is influenced by both supply and demand dynamics, and geopolitical trends.
“You assume oil prices are stable because all the countries are going green and building infrastructure in renewables and windfarms. Therefore, demand for oil will naturally go up.”
Diversification into renewable energy
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In order to sustain growth in the coming years, Marco Polo has begun diversifying its business into renewable energy, as seen in its support of offshore windfarm projects throughout Asia.
While Lee notes that the renewable energy sector is in its “nascent stage”, there is strong demand.
He cites Taiwan’s ambition of building 20 gigawatts of offshore wind pow- er and its present status of five gigawatts.
Eventually, Lee wants Marco Polo to derive around 50% of its revenue from renewable energy-related work.
Following Marco Polo’s agreement with Siemens Gamesa for crew transfer vessels (CTV) for offshore wind projects in Taiwan and South Korea, Maybank Securities analyst Jarick Seet has a “buy” call and target price of 9 cents.
“We expect Marco Polo Marine to start supplying two CTVs by end-2024 and eventually grow to a sizeable fleet of 10 to 15 CTVs within four to five years,” he says.
On the shipbuilding front, the construction of a fourth dry dock is scheduled to be fully completed in 1HFY2025.
Lee concludes: “We’ve gone through the rough patch that was Covid-19 and we were lucky enough to be able to restructure our- selves. While we were hoping that the oil and gas sector was going to make a comeback, it didn’t happen right away. So, you have to un-derstand the whole ecosystem, how it works and everything, before developing your own strategy, and we were lucky enough to start work on the offshore wind sector when we did.”
