• MarcoPolo Marine (SGX:5LY)’s 1HFY22 (Oct 2021 to Mar 2022) revenue surged 30.9% y-o-y. Its adjusted NPAT (excluding one-offs) pointed to a turnaround from 1H21’s loss of S$0.3m – and it booked a S$1.2m profit. Its GPM and EBITDA margin also improved.
• As the outlook on the O&G industry improves in tandem with the increase in oil prices, we expect charter rates to continue growing by another 10-20% this year. Also, MarcoPolo Marine’s utilisation rate should pick up to around 80% in FY22, which would further boost its profitability.

Turnaround on Track – Better Performance to Come

• As of 1HFY22, its utilisation rate has recovered to pre-pandemic levels and risen y-o-y, driven by strong demand from both the O&G and offshore windfarm sectors. We expect utilisation rates to pick up to 70-80% (from 60% currently) by the end of this year.
• In addition, charter rates have also picked up by 15-20% y-o-y in the same period, due to stronger demand as well as the reflagging of one vessel to service the Taiwan offshore windfarm market.
• We expect charter rates to rise by a further 10-20% over the new few months, due to limited supply and strong demand. MarcoPolo Marine’s gross profit margin widened from 23.8% in 1HFY21 to 29.6% in 1HFY22, and its net cash position improved from S$16.1m to S$27.9m in the corresponding periods.

Green Energy Will be the Future

• Management has been actively diversifying and expanding MarcoPolo Marine’s activities beyond the O&G industry. As of 1H22, 40% of its utilised vessels are working on offshore windfarm projects in Taiwan. We believe that MarcoPolo Marine 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 sector by 2Q23.
• The acquisition of Taiwan-based PKR Offshore will add two OSVs to MarcoPolo Marine’s fleet – taking its total size to 13 OSVs, of which five are servicing the windfarm sector in Taiwan.

Positive Outlook Will Likely Cause a Stronger Turnaround

• The WTI crude price has been recovering our BUY recommendation.

ESG

• Using our in-house proprietary methodology, we derive an ESG score of 3.0 for MarcoPolo Marine, which is on par with the country median. As a result, we apply a 0% premium to our target price.
• Maintain BUY call on MarcoPolo Marine with a DCF-backed target price of S$0.04, 33% upside.

Source: RHB Invest Research - 3 Jun 2022