Lim & Tan Securities analyst Nicholas Yon has initiated coverage on Marco Polo Marine 5LY 0.00% with a &ldquo buy&rdquo call as the company is currently &ldquo firing on both engines&rdquo . Its ship chartering segment is seeing tailwinds with high rates while its shipbuilding segment is backed by a substantial order book pipeline that ensures visibility in revenue for the coming years, Yon writes.

 

&ldquo There continues to be a mismatch of demand and supply in anchor handling tug supply (AHTS) vessels, even in 2024, despite the influx of new builds entering the market, leading to a continued surge in offshore support vessel (OSV) charter rates,&rdquo the analyst points out.

 

With this, Marco Polo Marine&rsquo s strategy of opting for relatively shorter renewal rates gives the company an advantage to recalibrate its pricing more frequently, he notes. Furthermore, the move will enable the company to capitalise on the ongoing upswing. This &ldquo strategic manoeuvre&rdquo is boosted by Taiwan&rsquo s commitment to the wind farm market, which further sustains the company&rsquo s position in the market as well as its profitability.

 

On the company&rsquo s &ldquo robust&rdquo shipbuilding segment thanks to its high order book, Yon sees that the stability is further bolstered by the recent addition of the framework agreements with Vestas and Siemens. Marco Polo Marine signed a three-year framework agreement with Vestas for the deployment of its new commissioning service operations vessel (CSOV) in November 2023 while it secured the Asia Pacific (APAC) crew transfer vessel (CTV) framework agreement with Siemens Gamesa for projects spanning Taiwan and Korea in March this year.

 

Plus, the notable uptick in ship repair utilisation, with upward-trending utilisation rates, is bound to help the company&rsquo s shipbuilding segment.

 

&ldquo To address the growing and sustained demand, Marco Polo Marine is proactively expanding its infrastructure by constructing a fourth dock, slated to become operational by 1H2025 - This will augment Marco Polo Marine&rsquo s repair capacities by another impressive 25%,&rdquo says Yon.

 

Another upside for the company is its healthy net cash position of $60.8 million, which lets it capitalise on the ongoing upcycle in the oil and gas (O& G) industry.

 

&ldquo Since undergoing restructuring in 2017, Marco Polo Marine has emerged as a significantly more robust and well-structured company,&rdquo says Yon, who adds that following its turnaround in 2021, the company has showed its strengthened financial position and confidence by reinstating its dividends for the FY2023 ended Sept 30, 2023.

 

&ldquo This decision not only underscores the company&rsquo s improved performance but also signals brighter times ahead, reflecting Marco Polo Marine&rsquo s renewed stability and potential for sustained growth,&rdquo he continues.

 

Yon has also given Marco Polo Marine a target price of 8.3 cents, representing an upside of 25.8% to the company&rsquo s actual share price of 6.6 cents as at his report dated April 5.

 

&ldquo Marco Polo Marine today trades at 8.7 times FY2024 P/E (ex-cash FY2024 P/E: 6.5 times) and 1.3 times P/B, which is undemanding compared to [its] peers&rsquo valuations of 13.9 times FY2024 P/E,&rdquo says the analyst.

 

&ldquo Given the higher potential of the current upcycle, we think that Marco Polo Marine can trade up to at least 11.0 times P/E, representing a 20% discount to the previous peak and current peers&rdquo , he adds.

UOB Kay Hian analysts Heidi Mo and John Cheong have maintained their &ldquo buy&rdquo call on Marco Polo Marine 5LY -1.64% with a higher target price of 8.6 cents from 7 cents previously.

 

The analysts&rsquo 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.

 

&ldquo 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,&rdquo write Mo and Cheong in their March 22 report.

 

The valuation peg is applied to the analysts&rsquo 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.

 

&ldquo 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,&rdquo they say.

 

As such, the company is likely to enjoy higher demand for its OSVs and, in turn, more favourable charter rates moving forward.

 

&ldquo 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,&rdquo the analysts add.

 

Marco Polo Marine&rsquo 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.

 

&ldquo 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),&rdquo say the analysts referring to the offshore and marine (O& M) counter&rsquo s share price of 6.2 cents at the time.

 

SHARES of Marco Polo Marine : 5LY +5.08% rose on Thursday (Mar 21) morning after Maybank Securities initiated coverage on the stock with a &ldquo buy&rdquo call on Wednesday.

 

As at 9.23 am, the shipyard and marine logistics company had risen 6.8 per cent or S$0.004 to S$0.063 after 17.1 million of its shares were transacted, which was more than twice the counter&rsquo s average volume of about 8.5 million. 

 

The counter later closed S$0.003 higher at S$0.062, after 37.3 million shares worth S$2.3 million changed hands.

 

No married deals took place in early trade, according to ShareInvestor data. 

 

Two high-value trades of above S$150,000 each were made, with the first taking place at the pre-open at S$0.061 apiece for 4.5 million Marco Polo Marine shares. Another transaction of the same price was recorded at 9.19 am for 9.4 million securities.  

 

After markets closed, the company announced that its Taiwanese subsidiary, PKR Offshore, has secured the Asia-Pacific Crew Transfer Vessel framework agreement with wind turbine manufacturer Siemens Gamesa.

 

The agreement will last from 2024 to 2026, with an option to extend till 2030, to support Siemens Gamesa&rsquo s offshore wind projects in Taiwan and Korea.

 

The company said that the agreement will contribute positively to the revenue and profits of the group but will not be material to its results and performance in the current financial year ending Sep 30, 2024.

 

The company&rsquo s share price activity comes after Maybank on Wednesday initiated coverage on its stock with a &ldquo buy&rdquo call and target price of S$0.09. 

 

Analyst Jarick Seet said he expects the company to benefit from the surge in demand and charter rates due to competition for vessels from the oil and gas, and renewable energy sectors. 

 

Seet said that rising charter rates over the past three to four years have benefitted Marco Polo Marine&rsquo s gross and net margins &ldquo greatly&rdquo . 

 

He projected the group&rsquo s charter revenue to grow 25 per cent year on year for FY2024 and FY2025. 

 

Marco Polo Marine&rsquo s framework agreement for a new commissioning service operation vessel with wind farm operator Vestas is also expected to boost profits by about 20 per cent from FY2025 to FY2026, said Seet. 

 

In all, the company&rsquo s net profit after tax is forecasted to grow by a compound annual growth rate of 26.5 per cent from FY2023 to FY2026. This could in turn translate to higher dividends to be paid out by the company, added the analyst. 

 

&ldquo We believe that while management is conserving cash for expansion of its fleet, it will continue to reward shareholders with higher dividends if the company continues to perform well,&rdquo said the analyst. 

 

He viewed Marco Polo Marine as &ldquo undervalued, especially considering the exciting growth prospects ahead&rdquo .

 

The stock currently trades at a 6.9 times price-to-earnings (PE) ratio based on the brokerage&rsquo s FY2024 estimates, which is a discount compared to its peers that are trading at 15 to 25 times PE ratio on average. 

 

PKR Offshore, a Taiwanese subsidiary of Marco Polo Marine 5LY 0.00% , has secured the Asia-Pacific crew transfer vessel (CTV) framework agreement with Siemens Gamesa for projects spanning Taiwan and Korea. 

 

The landmark agreement, effective from 2024 to 2026, with an option to extend to 2030, aims to support Siemens Gamesa&rsquo s offshore wind projects in Taiwan and Korea and grants Siemens Gamesa access to PKR Offshore&rsquo s plan to increase its fleet of CTVs in the coming years. 

 

PKR Offshore has collaborated with Siemens Gamesa since 2018, contributing to the construction of various offshore wind farms in Taiwan. 

 

Marco Polo Marine says the latest collaboration underscores its commitment to expand their footprint beyond their base in Taiwan, including new markets such as Korea and other up-and-coming offshore wind markets in Asia. 

 

The maiden CTV charter in South Korea will begin in 4Q2024, marking the company&rsquo s first entry into the new market.

 

According to Marco Polo Marine, South Korea has some of the largest offshore wind projects worldwide, and is committed to achieving net zero carbon emissions by 2050. With the latest amendment in the country&rsquo s policies, its installed capacity targets for renewables will increase. 

 

Data from InfoLink suggests the county&rsquo s offshore wind power will rise from the current 12GW to 18-20GW by 2030.

 

Kelvin Teo, managing director at PKR Offshore, says: &ldquo Following our previous successful partnership with Siemens Gamesa in Taiwan, we are proud that Siemens Gamesa has again selected PKRO for this longer-term CTV framework agreement for both Taiwan and Korea, reaffirming their trust in our ability to deliver good quality vessels and excellent operational performance in the offshore wind market.&rdquo

 

&ldquo With the accelerating growth of the offshore wind industry, there is a pressing need for more CTVs to facilitate the installation and servicing of offshore wind turbines,&rdquo adds Teo.

 

Marco Polo Marine says the new agreement will be mutually beneficial for both companies to collaborate on a longer-term partnership in the Asia-Pacific region with CTVs forming an integral part of the construction of offshore wind farms.

 

It notes that Siemens Gamesa, which has installed more than 2 gigawatts (GW) in the Asia-Pacific region, has a &ldquo bullish outlook&rdquo on offshore growth expectations for the region.

 

CEO Sean Lee says: &ldquo We are thrilled to cement our partnership with Siemens Gamesa through this comprehensive framework agreement, underscoring our commitment to excellence in the offshore wind sector and our shared vision for a sustainable future.&rdquo  

 

&ldquo The collaboration will advance the renewable energy landscape in Asia, particularly in Taiwan and Korea, where the potential for offshore wind energy is immense. Together, we are setting a strong foundation for the region' s growth and development of green energy initiatives,&rdquo he adds.

 

&ldquo Siemens Gamesa recognizes the critical role of reliable suppliers in driving the growth of the offshore wind market. As we continue to expand our presence in Taiwan, we are dedicated to leveraging the invaluable experience gained in this market to benefit the broader Asia-Pacific region. The framework agreement with Marco Polo Marine enables us to proactively secure vessel capacity, securing the seamless execution of our future construction projects in the regions,&rdquo says Wayne Cheng, marine asset manager at Siemens Gamesa Renewable Energy. 

 

The framework agreement with Siemens Gamesa is expected to contribute positively to Marco Polo Marine&rsquo s revenue and profits, however, the contribution will not be material to its results and performance for the current FY2024 ending Sept 30.

Maybank initiation report

 

 

Marco Polo Marine has reported revenue of $29.1 million for the 1QFY2024 ended Dec 31, 2023, 22.8% higher y-o-y as the group&rsquo s operational performance in ship chartering improved y-o-y although revenue from its shipyard segment fell marginally on a y-o-y basis.

 

Gross profit surged by 75.8% y-o-y to $11.6 million due mainly to the higher charter and utilisation rates of the group&rsquo s fleet of offshore supply vessels (OSVs). Gross profit margin (GPM) also surged by 12.1 percentage points y-o-y to 39.9%.

 

In the 1QFY2024, the ship chartering segment saw a 9 percentage point y-o-y growth in its average utilisation rates from higher average charter and utilisation rates for its OSVs. As such, its operating capacity stood at 70%. There was also increased rechartering of third-party vessels in 1QFY2024, significantly contributing to the group&rsquo s positive y-o-y revenue growth.

 

Revenue from the shipyard segment dipped from the lower ship repair volume following the competitive reopening of Chinese shipyards. The impact of lower ship repair revenues was mitigated by the sustained momentum in shipbuilding activities carried over from the previous quarter.

 

Looking ahead, the OSV market in Southeast Asia is expected to remain robust from high demand from offshore wind farms and the oil and gas industries. This is also expected to underpin higher average utilisation rates.

 

The group&rsquo s shipyard segment also looks positive as ship repair volumes are expected to pick up with the stabilisation of China&rsquo s reopening. Shipbuilding activities are also expected to continue their momentum.

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