Brokers' take: SAC Capital initiates 'buy' on Marco Polo Marine with S$0.032 target price

SAC Capital has initiated coverage on mainboard-listed Marco Polo Marine (MPM) 5LY with a "buy" call and target price of S$0.032, as it sees more opportunities for the group in the Taiwan wind farm market, as well as revenue growth from higher charter and utilisation rates.

The target price is pegged to 8 times FY2022 enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio, which is the median for the offshore sector and close to that of MPM's closest peer, ASL Marine.

In a report on Tuesday (Jan 4), SAC analyst Lim Shu Rong said MPM will be increasing the number of its vessels chartered to Taiwan from 2 to 4 by end-2022, as Taiwan ramps up its offshore wind capacity. The market's strict vessel requirements and higher barriers to entry give MPM an advantage over its competitors, said the analyst.

Lim noted that MPM's reflagging exercise will hand it an edge in scoring more wind farm projects - which offer better margins at 15 to 20 per cent more, compared with oil & gas projects - as Taiwanese contractors prefer Taiwanese-flagged vessels over foreign-flagged ones.

However, the analyst pointed out that slower growth is expected in the first half of 2022 for MPM's chartering revenue. This is because its vessels which were previously working in the Taiwan wind farm are off-chartered till February, due to the monsoon season.

"The vessels are due to return to work in February 2022, and (MPM will have to) play catch up in the second half of 2022, with its 2 additional vessels planned to be deployed to service Taiwan wind farms," Lim said.

SAC also highlighted MPM's rebound in FY2021, which saw the group turn into the black since its restructuring in 2017. The brokerage also likes MPM as it remains in a net cash position despite taking on a temporary bridging loan of S$5 million.

According to Lim, a further upside in charter rates will help to boost MPM's revenue and margin expansion, given that more than 50 per cent of the group's vessels are due for charter renewal in the first half of 2022.

The renewal of charter contracts will help to mitigate a minor hit to the group's margins during the monsoon season while its vessels in Taiwan are off-chartered until February 2022, said the analyst.

Growth in charter rates is also likely, in Lim's view, given that oil majors are planning to increase their capital expenditures to capitalise on the current "robust price environment", as well as considering higher demand for offshore support vessels from offshore renewables and decommissioning projects.

The analyst also observed that MPM will be able to take on more contracts once the expansion of its dry dock is completed by January, and that recovery of the local construction scene will aid in the utilisation of MPM's fleet of 24 tugs and barges.

Shares of Marco Polo were trading flat as at 3.53 pm on Tuesday.

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