• Keep BUY and SGD0.08 TP, 52% upside and c.2% FY25F (Sep) yield. We continue to like Marco Polo Marine as we remain positive on the deployment of its new commissioning service operation vessel (CSOV) in FY25F. Construction of offshore windfarms is also expected to drive the vessel’s strong utilisation and charter rate. Further, we expect earnings to be supported by firm offshore support vessel (OSV) demand for ship chartering, driven by better utilisation and charter rates.

• Outlook continues to be firm. Our outlook for MPM remains positive going forward with new vessels coming onstream, higher shipyard capacity, and a robust ship chartering environment. For chartering of OSVs, we see strong exploration and production activities fuelling strong demand and utilisation for ship charters, with a tight supply of OSVs keeping charter rates lofted for the next few quarters. Fleet size is expected to increase, with MPM adding two new crew transfer vessels (CTVs) to its fleet for Siemens Gamesa’s offshore wind projects in Taiwan and South Korea from 2024 to 2026. In addition, MPM’s CSOV is scheduled for deployment, operations and revenue contribution in 1HFY25F. Both utilisation and rates are expected to be positive with CSOV vessels currently in short supply. MPM continues to receive and sign charter arrangements with hirers for their development of offshore windfarms. Any further plans to construct another CSOV would be positive in our view. In the shipyard segment, capacity is expected to increase with the planned expansion into a fourth dry dock scheduled for completion in 1HFY25. We expect a larger fleet size, higher shipyard capacity, and firm demand environment for ship chartering to support growth going forward.

• 3QFY24 revenue on track, gross profit outperforms. MPM’s 3QFY24 update showed revenue of SGD34.9m (-4.6% YoY) and gross profit of SGD14.6m (+2.6% YoY). Revenue was in line with our forecast, but gross profit margin of 41.8% outperformed our expectations on strong charter rates. Revenue decline was affected by the shipyard segment, due to its own CSOV under construction occupying one of its three dry docks, leading to lower capacity. Its ship chartering’s utilisation declined by 6ppts YoY to 86% due to a high base in 3QFY23. Shipyard utilisation increased 3ppts YoY to 96%, but revenue was lower due to its CSOV occupying one dry dock.

• 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 the country median – we apply a 0% premium/discount to its intrinsic value to derive our TP.

Source: RHB Research - 18 Oct 2024