Marco Polo Marine has reported gross profit of $14.6 million for the 3QFY2024 ended June 30, up 2.6% y-o-y from $14.2 million in 3QFY2023. 

 

This came alongside a 3.1 percentage point (ppt) expansion in gross profit margin, standing at 41.8% in 3QFY2024 from 38.7% from the same period last year. 

 

Gross profit for the 9MFY2024 rose by 15.4% y-o-y to $36.8 million while gross profit margin for the period increased by 3.8 ppts to 38.2%. 

 

The group' s revenue for 3QFY2024 decreased by 4.6% y-o-y to $34.9 million, compared to $36.8 million in 3QFY2023. 

 

This came on the back of lower revenue from its shipyard segment, due to the full utilisation of one of the group&rsquo s three dry docks in the construction of its commissioning service operation vessel (CSOV) which made it unavailable to take on third-party jobs.

 

Revenue for the 9MFY2024 was up by 4% y-o-y to $96.5 million.

 

As the delivery of the CSOV is expected to be delayed by approximately four months, Marco Polo Marine 5LY 3.85% says it anticipates potential activation of the liquidated damages clause from the charter contract signed between Vestas Taiwan Co., Ltd and the Group' s Taiwan-based subsidiary, PKR Offshore Co., Ltd. 

 

Despite this, the group says that it does not expect a &ldquo material impact&rdquo on its net profit attributable to owners for the financial year ending 30 September 2024.

 

Nonetheless, the segment saw strong utilisation rates, up 3.0 ppt y-o-y to 96% in 3QFY2024. 

 

Meanwhile, the group&rsquo s ship chartering segment &ldquo performed well&rdquo despite seeing a 6.0 ppt y-o-y decline in average fleet utilisation rates to 86% in 3QFY2024 from 92% in 3QFY2023. 

 

The segment&rsquo s operating performance was driven by higher charter rates secured by its fleet of offshore support vessels (OSVs) due to a favourable supply-demand environment. 

 

Moving forward, the group remains positive of its near term outlook within the OSV market. 

 

The group anticipates rising demand amid a tight supply for offshore and gas supply vessel, which is expected to sustain high charter rates for Marco Polo Marine&rsquo s fleet of OSVs. 

 

To this, Sean Lee, CEO of Marco Polo Marine says: &ldquo We are encouraged by the strong performance in our ship chartering segment, driven by higher charter rates and favourable market conditions.&rdquo  

 

Additionally, the group has recently commenced the construction of its fourth dry dock in May 2024, which will be funded through a combination of operational cash flows and external financing from banks. 

 

The project is expected to be completed by February 2025 and with its addition contributing to the group' s revenue and profits by the second quarter of FY2025.

Against the backdrop of an unpredictable macroeconomic outlook, Marco Polo Marine 5LY -1.85% group CEO Sean Lee has begun pivoting the group&rsquo s business away from the cyclical nature of oil.

 

&ldquo 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,&rdquo says Lee.

 

Listed on the Singapore Exchange S68 -0.41% &rsquo 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&rsquo s ship chartering segment which achieved higher charter rates.

 

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.

 

He explains: &ldquo It&rsquo s not like in the past, where because rates were so good people just jumped into the business. People who didn&rsquo 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&rsquo re not disinterested like they were in the past.&rdquo &ldquo

 

There are a few reasons why we don&rsquo 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,&rdquo continues Lee.

 

Shipyard revenue down Meanwhile, revenue from Marco Polo&rsquo s shipyard segment declined 8.6% y-o-y to $28.7 million in 1HFY2024 due to the reopening of China&rsquo s shipyards, which in turn led to lower ship repair volume.

 

Lee says: &ldquo This is a very capital-intensive industry and you are dependent on &lsquo the best timing&rsquo so there won&rsquo 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%.&rdquo

 

Even with stable oil prices currently, Lee is cautious, as the industry is influenced by both supply and demand dynamics, and geopolitical trends.

 

&ldquo 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.&rdquo

 

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 &ldquo nascent stage&rdquo , there is strong demand.

 

He cites Taiwan&rsquo 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&rsquo 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 &ldquo buy&rdquo call and target price of 9 cents.

 

&ldquo 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,&rdquo he says.

 

On the shipbuilding front, the construction of a fourth dry dock is scheduled to be fully completed in 1HFY2025.

 

Lee concludes: &ldquo We&rsquo 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&rsquo 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.&rdquo