• Keep BUY, higher SGD0.081 TP from SGD0.073, 20% upside with c.2% FY24F (Sep) yield. We are more positive on Marco Polo Marine given the recent crew transfer vessel (CTV) arrangement with Siemens Gamesa, which will see MPM’s fleet size increase and boost FY25F-26F earnings – we raise earnings by 8-10% as a result. Besides, we do not believe the recent Taiwan earthquake will pose significant negative earnings impact. Our new DCF based TP implies 11.2x FY25F P/E.

• Safe from Taiwan’s earthquake. We see minimal impact to MPM from last week’s 7.4 magnitude earthquake at Hualian City. The group, through its ship chartering subsidiary PKR Offshore, derived c.26% of its revenue from Taiwan in FY23. MPM’s assets and people are reportedly safe from the earthquake. We also understand that most of the group’s projects are located in the western side of Taiwan as opposed to the Hualien City epicentre on the island’s eastern coast. Hence, we believe there should be no major negative impact on operations for now. In addition, project owners are typically required to continue paying for ship charters even if they encounter project delays. We believe MPM’s ship chartering contracts are unlikely to be exceptionally different from standard industry practices.

• Raise FY25F-26F earnings by 8-10% on more positive Siemens Gamesa CTV arrangement. MPM also earlier announced that it had entered into a chartering agreement with Siemens Gamesa to supply CTVs for the latter’s offshore wind projects in Taiwan and South Korea from 2024 to 2026. In view of the new arrangement, we increase our fleet size assumption by two vessels by FY26. We have also imputed slightly better charter rates and margins to reflect the current higher charter rate environment and better operational leverage. Our FY25F-26F earnings are hence increased by 8-10%. In line with our earnings upgrade, our DCF based TP is accordingly lifted by 10% to SGD0.081.

• Buoyant outlook. MPM’s outlook remains positive with its commissioning service operation vessel (CSOV) due for delivery and deployment in Sep 2024. The ship chartering business continues to support offshore oil and gas projects, with uplift from an increased fleet going forward, led by the new agreement with Siemens Gamesa. We are now anticipating better margins and operating leverage in our FY25F-26F earnings.

• 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 represent downside risks to our earnings estimates and TP.

• ESG. 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 - 9 Apr 2024