Marco Polo Marine Ltd
LAST CLOSE: S$0.380
FAIR VALUE: S$0.550
Sailing into higher growth
Marco Polo Marine Ltd (“MPM”) is an integrated marine logistics group whose primary business include 1) Ship owning & chartering and 2) Shipyard services. The chartering division provides mainly Anchor Handling Tug Supply (“AHTS”) vessels as well as Tugs and Barges to various industries. The shipyard division undertakes ship building, repair and maintenance, outfitting and conversion services from its yard in Batam, Indonesia.
Indonesia growing need for energy. With oil production forecasted at 825K bbl/d in 2013 relative to consumption of 1.6m bbl/d, we see an immediate need for the government to promote oil and gas exploration activities in the coming years. This will boost requirements for offshore support vessels such as those provided by MPM.
Operating in a cabotage protected environment. MPM is able to partake in Indonesia’s fast growing oil and gas market through its 49.6% stake in PT BBR. The cabotage law enforced in 2012 benefited MPM through higher barrier of entry whereby foreign-flagged AHTS vessels are no longer eligible to bid for projects in Indonesia.
MPM focus on the relevant assets. MPM’s current strategy is to own and operate mid-sized 8,000BHP AHTS vessels. With offshore production increasingly moving towards deep-water, MPM is in a sweet spot with its 8,000BHP category vessels capable of both shallow and deep-water operations.
Progressive delivery of vessels provides visibility. With six new 8,080BHP vessels being progressively delivered from May 2014 onwards, earnings growth is visible for the next 2 years. Possible foray into other asset classes such as subsea vessels or jack-up rigs will provide the next leg of growth beyond 2015.
Initiate BUY with FV S$0.550. We value MPM at 9.6X FY14 P/E, in line with its average historical P/E valuation based on normalized PATMI earnings. Fair value of S$0.550 is derived, translating to an upside of 48%, inclusive of a forecasted yield of 3.6%.