• Keep BUY and SGD0.081 TP, 20% upside and c.2% FY24F (Sep) yield. We are upbeat on Marco Polo Marine as we remain positive on growth prospects going forward. The group’s new Commissioning Service Operation vessel (CSOV) is due to be deployed in FY25F, and with construction of offshore windfarms in growing demand, we are positive on the vessels’ strong utilisation and charter rate growth driven by CSOV. Earnings are also expected to be supported by firm Offshore Support Vessels (OSV) demand for ship chartering.

• 1HFY24 in line. MPM reported 1HFY24 revenue of SGD62m (+10% YoY) and net profit of SGD12m (+106%), which are within our estimates, Revenue was mainly driven by higher charter rates in the ship chartering segment (SGD33m, +34% YoY). Average charter rates grew 17% YoY, while average utilisation rates softened to 60% due to timing issues in temporal project deployment. The shipbuilding and repair segment declined by 9% YoY to SGD29m. There was softer ship repair volume as China shipyards reopened, but higher shipbuilding revenue from outstanding orders and existing orderbook. Gross margin expanded to 22% (+4.5ppts) largely due to higher charter rates and operating leverage. As earnings are line with our estimates, we make no changes to our earnings forecasts and TP.

• Firm outlook ahead. Our outlook for MPM remains positive. For chartering of OSVs, we see strong exploration and production activities fuelling strong demand and utilisation for ship charters, while a tight supply situation should keep charter rates lofted for the next few quarters. MPM’s fleet size should increase as well after it inked a crew transfer vessel (CTV) arrangement with Siemens Gamesa to supply CTVs for the latter’s offshore wind projects in Taiwan and South Korea from 2024 to 2026. MPM’s CSOV is now approximately 69% complete (as of 31 Mar 2024) and is scheduled for deployment and operations in Oct 2024 and revenue recognition in 1HFY25F. With CSOV vessels in short supply, the CSOV’s utilisation going forward is positive as MPM continues to receive and sign charter arrangements with hirers for their development of offshore windfarms. We believe any further plans to construct another CSOV would be a stock catalyst. In the shipyard segment, the expansion into a fourth dry dock scheduled for completion in 1HFY25 will increase its capacity for more ship repair projects.

• 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 0% discount/premium to its intrinsic value to derive our TP.

Source: RHB Research - 28 May 2024