• Maintain BUY, new SGD0.073 TP from SGD0.067, 35% upside with c.2% FY24F (Sep) yield. We remain positive on Marco Polo Marine as it remains in a sweet spot to deploy and operate its first commissioning service operation vessel (CSOV) by end FY24F, in an environment where such vessels (used to build offshore windfarms) are in short supply. Meanwhile, earnings are expected to remain buoyant, on the back of firm Offshore Support Vessels (OSV) demand for ship chartering and new customers for its shipyard division.

• 1Q24 above. MPM announced 1Q24 revenue of SGD29m (+23% YoY) and gross profit of SGD12m, which represented gross profit margin of 39.9% (+2.1ppt). Revenue was driven by the ship chartering segment, which saw higher utilisation at 70% and better rates, including the increase in re- chartering of third-party vessels due to the buoyant demand for vessels in offshore oil and gas, and windfarms. MPM’s shipyard segment was steady, and saw a decline in ship repair volume due to reopening of yards in China, offset by higher shipbuilding activities. Gross margin swelled to 39.9% on the back of better utilisation rate of its OSV charter fleet.

• Buoyant outlook. MPM’s ship chartering business continues to be in support of offshore oil and gas projects, especially in South-East Asia, and windfarms in Taiwan, with OSV charter rates expected to remain buoyant. High utilisation rates are hence expected to persist. The company is also targeting to increase ship repair and maintenance orders for the shipyard division through new customers, especially local shipowners in Indonesia. Newbuild contracts secured include the construction of barges for delivery until as late as 2HFY24. We therefore expect a more stable outlook for its shipyard going forward. MPM’s CSOV is targeted for completion by the end of FY24 and we expect meaningful contribution from FY25F.

• Raise FY24-26 earnings estimates 7-12%. As 1Q24’s revenue and margins outperformed our estimates slightly, we now raise our FY24-26 forecasts accordingly. We now ascribe a stronger gross margin assumption as we now see sustainably higher rates, due to the demand for vessels vis-à-vis limited supply in the market. The ship chartering segment is expected to drive growth going forward – from its existing fleet in the oil & gas segment in FY24F, and the new CSOV from FY25F. Our SOP-based target price rises correspondingly to SGD0.073.

• Key risks. Our forecasts and TP are premised on improved charter rates, stronger utilisation rates, and the successful deployment of MPM’s CSOV – all over the next two years. We believe any underperformance in these aspects would present downside risks to our earnings estimates and TP. As MPM’s ESG score is 3.1 out of 4 – on par with our country median – we apply 0% discount/premium to its intrinsic value to derive our new TP.

Source: RHB Research - 20 Feb 2024