• Keep BUY and SGD0.08 TP, 56% upside and 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. Furthermore, we expect earnings to be supported by ship chartering, driven by better utilisation, better charter rates, more vessels, and higher drydock capacity.
• Higher capacity in fleet size and shipyard capacity to drive growth. We expect a larger fleet size, higher shipyard capacity, and firm demand environment for ship chartering to support growth going forward. Fleet size is expected to increase, with MPM adding three new vessels - including two crew transfer vessels (CTVs) to its fleet for Siemens Gamesa's offshore wind projects in Taiwan and South Korea from 2024 to 2026. MPM's CSOV is scheduled for deployment, operations, and revenue contribution in 1HFY25F. With CSOV vessels currently in short supply, both utilisation and rates are expected to be positive. In the shipyard segment, MPM's fourth dry dock is scheduled for completion in 1HFY25, adding capacity for ship repairs.
• FY24 earnings below. FY24 revenue was SGD124m (-2.8% YoY) while core earnings was SGD22m (+4% YoY), below our estimates. Revenue decline was largely led by shipbuilding and repair segment at SGD52m (-16% YoY) on lower capacity, with one of its three drydocks utilised for the construction of its CSOV. Otherwise, ship chartering grew 9% YoY to SGD72m on higher charter rates and increase in re-chartering of third-party vessels. Gross margin grew to 39.3% (+3.3ppt) due to operating leverage, especially from ship chartering. EBIT margin remained relatively stable at 30%, as better gross margins was offset by higher operating costs, including administrative and other operating expenses. A final dividend of 0.1 SG cents per share was declared, equivalent to 17% payout ratio.
• Raise FY26F earnings by 6%. Despite the decrease in shipyard revenue missing expectations, we expect shipyard revenue to normalise when its CSOV which occupied one dock is deployed into service. We raise FY26F earnings by 6% to account for higher shipyard capacity and fleet size as they contribute progressively to revenue this year.
• 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. 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 - 14 Jan 2025