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Marco Polo Marine: A neglected gem.

Tuesday, January 1, 2013

I have revealed how I diverted some resources away from S-REITs to invest in certain stocks which I feel are undervalued and have the potential for some meaningful capital gains in subsequent months.

DBS Vickers thinks that mid cap offshore plays could catch up with the large caps as risk appetite improves and the industry fundamentals remain strong. I share those sentiments.

Their top picks are Ezion, ASL Marine Holdings and Ezra Holdings.


My pick? Marco Polo Marine.

Persistent insider buying in Marco Polo Marine caught my eyes six months ago. When insiders increase their shares in large quantities, we must suspect that something good is brewing.

UOB is of the opinion that a new upcycle has begun for the OSV sector. This is supported by OCBC which revealed that the OSV to rig ratio will start falling in 2013 and this will favour vessel owners.

Marco Polo Marine together with its 49% owned Indonesian subsidiary ventured into the OSV sector in 2010 and currently own seven OSVs. Net profit received a leg up from their Indonesian subsidiary and doubled QoQ recently.

The scheduled listing of its Indonesian subsidiary on Indonesia Stock Exchange this month is likely to add some 30% to the NAV of Marco Polo Marine, according to Maybank KimEng.

Now, what does all this mean for Marco Polo Marine's current share price? It is too cheap.

ASL Marine Holdings last traded at 67.5c a share and its PER is about 8.9x. For Marco Polo Marine to trade at a PER of about 8.0x, its share price has to be about 50.5c. This is, in fact, conservative because EPS in 2013 is likely to be higher which means a PER of 8.0x will translate into a higher share price. Marco Polo Marine last traded at 38.5c a share.

This is just the beginning. If we believe that a new upcycle has just begun, then, the sector will continue to be upgraded. Indeed, analysts at DBS Vickers have a 12 months price target of 90c for ASL Marine Holdings.

Where would we see Marco Polo Marine's share price then? I wonder.

Related posts:
1. Marco Polo Marine: Persistent insider buying.
2. Marco Polo Marine: Patience will be rewarded.

See: Marco Polo Marine's insider trades here.

Adam and Conrad actually provide the blueprints – and the details – on how to make investing work.

One of the key skills you learn in this book: How to evaluate a business and the potential of its stock – in great depth! Worksheets are provided.

Now: Find out how!


19 comments:

JCK said...

"All things being equal" :)

Comparing with ASL, you mentioned the PER......is that forward PER?

Plus what is the biz size of ASL compared with Marco Polo?

i asked this because seems mkt always accord certain premiums to larger companies compared with smaller gems.

Disclaimer: invested In Marco Polo

AK71 said...

Hi JCK,

Very good questions.

1. Forward PER for both companies are expected to fall because of improving EPS.

2. ASL is bigger than Marco Polo, for sure. They are both in the mid-cap category though.

Whether Mr. Market would recognise that Marco Polo Marine is undervalued is not for me to say, obviously.

I bought into a good company at a good price. All I can do now is wait. :)

yeh said...

0.395 now, Qing 0.37 but didn get:(

AK71 said...

Hi yeh,

Well, if it is unable to clear resistance, we could see share price retracing to supports again. :)

yeh said...

hi ak,
hope i able to get this one before it flies.
last few week, i not able to get wilmar and see it flies, very heart pain now. :(:(:(

AK71 said...

Hi yeh,

Ah, I see. Well, we can always hope for the best outcome. :)

Ken said...

Hi AK,

As of your credulous testament, may I modestly infer that Potential Investors with low initial capital, can pursue into Marco Polo to appreciate for the undervalued intrinsic value.

Likewise, existing investors whom are OSV to Rig ratio intensive, can lock-in their purchases in an Advantageous position.

Cheers,
Ken

AK71 said...

Hi Ken,

Er... You may infer anything you think fit but I definitely am not making any advisories. ;)

AhJohn said...

hi AK, I trying to buy in Marco Polo at 38c too, hard to get at 32c.
Btw, I think Yangzijiang maybe another good pick if economy turns better in 2013, low PE, steady dividend increase. Any view?

AK71 said...

Hi Ah John,

I am confident about Marco Polo Marine. The fundamentals are strong and, technically, there is support.

As for YZJ, I am afraid I have not looked at this company before but I am sure there is no paucity of views from various analysts. :)

Desmond said...

Hi AK,

Just wondering if you have done a comparison between Marco Polo and CH Offshore. In terms of Net Profit Margin, ROA and ROE, CH Offshore seems to be doing better than Marco Polo. Liquidity is good. Leverage is zero. Moreover, it pays a decent dividend in excess of 5% while we wait for the industry to recover.

Would be great if you could share with us the rationale behind your preference for Marco Polo.

Thanks


Desmond

AK71 said...

Hi Desmond,

If you go back a few months, you will see how I got interested in Marco Polo Marine. It was insider buying and massive insider buying at that.

I don't know much about the industry but I am lucky to have a client who is in the industry and I found out from him that the ship repair business is booming. Marco Polo Marine is a beneficiary.

Then, reading more, I also found out about OSVs and how that is a business that is entering its up cycle.

Finally, I like how Marco Polo Marine is in Indonesia and how it will benefit from the listing of its Indonesian subsidiary too.

So, it was clear to me that I had to accumulate shares of Marco Polo Marine when they were in the low to mid 30+c per share.

As for CH Marine, I did not use that as a comparison although being an OSV owner, it would be a natural beneficiary of the up cycle in the business as well. CH Marine has a similar market cap as ASL Marine but I chose to compare Marco Polo Marine with ASL Marine as both of them own yards. :)

AK71 said...

Marco Polo Marine: Conviction call, Tapping into a captive market (BUY, S$0.415, TP: S$0.61)
Lee Yue Jer (+65 6232 3898, yuejer.lee@sg.oskgroup.com)

We re-initiate coverage with a Buy rating and TP of S$0.61. MPM is enjoying steady growth in its operations and bottom line, fuelled by an increasingly energy-hungry Indonesia. The growth profile combined with demonstrated
technical superiority means the stock should enjoy a premium, yet it trades at 1.0x historical-cost book. MPM is a conviction call with a potential to double in 2-3 years.

Rare gem for its direct exposure to cabotage-protected, resource-rich
Indonesia. MPM is one of the very rare companies which can safely operate in Indonesian waters, without running afoul of the strongly-enforced cabotage laws
and without having to worry about local partners, by virtue of management’s nationality. Indonesia, World #4 in population and the fastest-growing country in
Southeast Asia, is an archipelago of 17,000 islands necessitating tug & barge services and endowed with offshore oil and gas reserves in both shallow and deep waters.

Technical capabilities top in class. MPM’s shipyard has delivered AHTS vessels with sustained bollard pulls averaging 15% in excess of the norm.

Impressively, it recently outfitted a DP-3 vessel – a milestone usually reserved for established large yards. For a small company, this level of technical competence
is remarkable. We like small companies with superior capabilities – these tend to
appreciate strongly over the long term.

Associate PT BBR is listing today on the JSX. PT Bina Buana Raya, MPM’s 49%-owned associate, is listing today on the JSX. This will allow MPM to tap an alternative source of capital, much-needed in its capital-intensive growth strategy.

We are forecasting BBR to grow at a 90% EPS CAGR for the three years to
FY14F due to a fast-growing AHTS fleet, and 1H12 earnings of US$4.5m have already far exceeded the entire FY11’s US$2.6m.

Valuation: TP $0.61. Conviction call, likely to double in 2-3 years. We value MPM at 9x FY13F EPS, a fair multiple for 12.5% 3-year EPS CAGR. The same multiple on FY15F EPS yields a value of $0.80, a doubling on today’s price.


9 January 2013.

yeh said...

hi AK,
i am thinking to add more marco polo at 38c too. thinking to average down.

my entry price too high, 40.5 cent :(

AK71 said...

Hi yeh,

When you bought in at 40.5c, you said you would be quite happy with holding long term, iirc. ;)

I mean if you were to think along this line, then, buying in at 38c is also considered high if we look at my first entry price when I blogged about the counter middle of last year.

Now, think of it another way. If the shares trade at say 55c a few months later, would you say 40.5c entry price was too high then or would you kick yourself for not having bought a lot more at 40.5c? ;)

seefei said...

caught this gem last year at 35 cts. i am adding more at 41 seems seeing how resilient it has been while its competitors like ezra and ezion share price withering away.

MPM may not be hot at the moment but at least i can sleep in peace at night :)

AK71 said...

Hi seefei,

Congratulations. You got in early. :)

This is definitely a gem and I bought more at 40c recently too. Any pull back to supports would see me buying more.

teny123 said...

hi ak71,
what you think of nam cheong? both doing shipbuilding business. and nam cheong price is half of marco polo.

Thanks

AK71 said...

Hi Teny,

Nam Cheong is an excellent business. However, they are more of a ship builder than Marco Polo Marine.

Anyway, we shouldn't buy into Nam Cheong just because its share price is lower than Marco Polo Marine's.

We have to look at some ratios which are just a start. If you are not familiar with this, you might want to get a book to help you get started.

See: Getting started in investing and trading.

A quick look at EPS of Nam Cheong and Marco Polo Marine and we will realise why Nam Cheong's shares are not "cheaper".

FY12 EPS for Nam Cheong was 2.9c.
FY12 EPS for Marco Polo Marine was 6.0c.

So, it is not surprising that Nam Cheong should have share price at 50% of Marco Polo Marine's.

However, the market is forward looking. Expectations are for Nam Cheong's EPS to improve some 30% in FY13. Expectations are for Marco Polo Marine's EPS to improve some 15% in FY13. So, Name Cheong is expected to grow earnings at a faster clip and it should be reflected in its share price.

Do read up more and decide what you are comfortable with doing. :)

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