• Maintain BUY, with new DCF-backed TP of SGD0.05 from SGD0.04, 25% upside. Marco Polo Marine’s 3QFY22 (Sep) revenue rose by 139.5% YoY to SGD28.5m with its GP up 185.3% YoY to SGD9.7m due to a significant rise in charter rates, utilisation rates and increased capacity of its shipyard. Going forward, with the positive outlook, we expect charter rates to rise further, and as such, we raise FY22F-23F PATMI by 225% and 50%. This raises our TP to SGD0.05.

• Inflection point is here. In 3QFY22, revenue surged 139.5% to SGD28.5m as 3Q is usually the company’s strongest quarter due to seasonality. Such an increase is due to a strong recovery in its utilisation rate of close to 90%, driven by strong demand from the O&G and offshore windfarm sectors. In addition, charter rates have also picked up by 20-30% YoY for the same period due to stronger demand as well as the reflagging of one to service Taiwan’s offshore windfarm market. We expect charter rates to rise by a further 10-20% over the near term due to limited supply and strong demand. Gross margin rose from 28.6% to 34% YoY and should continue to further improve as rates rise. As a result, we feel that the inflection point for MPM is finally here, and as such, we raise FY22F-23F PATMI by 225% and 50% to account for higher charter and utilisation rates.

• Green energy will be the future. Management has been actively diversifying and expanding MPM’s activities beyond the O&G industry. As of 3QFY22, 40% of its utilised vessels are working on offshore windfarm projects in Taiwan. We believe that MPM will expand its operations in Taiwan, and will likely look to increase its chartering fleet in this space and have at least 50% of its fleet servicing the renewable energy (RE) sector by 2Q23. The acquisition of Taiwan-based PKR Offshore will add two OSVs to the group, boosting its fleet size to 13 OSVs, of which five are servicing the windfarm sector in Taiwan.

• Strong turnaround is now a reality. The WTI crude price has been recovering strongly. As such, MPM has also seen an uptick in ship charter utilisation rates and its shipyard operations. In addition, with the COVID-19 situation in Taiwan improving, this will likely speed up the progress of it winning RE projects. We believe that the continued recovery will be positive for the company’s profitability, and together with the catalyst of more RE contracts, leads us to maintain our BUY recommendation.

• ESG. Using our in-house proprietary methodology, we derive an ESG score of 3.0, which is on par with the country median. As a result, we apply a 0% discount or premium to our TP.

Source: RHB Research - 30 Aug 2022