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Marco Polo Marine: H1 FY2013 EPS up 61.2%.

Thursday, May 9, 2013

One of the numbers I always look at first in the reports of the companies I am invested in is earnings per share (EPS). As a shareholder, how the company performs on a per share basis matters a lot to me.

This evening, I got the positive results that I was expecting from Marco Polo Marine.

Results which were released at 5.38pm revealed a 61.2% increase in H1 FY2013 EPS compared to H1 FY2012. This is over and above my expectations.

With H1 FY2013 EPS at 4.06c, we could be looking at a full year EPS of close to 8c. This means that at today's closing price of 42.5c, Marco Polo Marine is trading at a modest PER of only 5.3x!

To trade at the 8x PER which I think is closer to fair value would mean a share price of 64c! This is much higher than my initial fair value estimate made many months ago which was 50.5c.


Realistically, I do not expect Marco Polo Marine's share price to trade at 8x PER soon. However, a re-pricing to 6x PER does not seem too far fetched. This would put share price at 48c or 12.9% higher than today's closing price.

Now, in my perfect world, tomorrow will see Marco Polo Marine's share price gapping up and hitting 48c. Of course, this is not my perfect world and we can only wait and see how Mr. Market will react to the rather bracing results tomorrow.

Read Media Release: here.

Related post:
Marco Polo Marine: Is this a good time to buy more?


 
Marco Polo Marine Ltd is an integrated marine logistic company which has expanded to become a reputable player in the marine industry in the region.
The Group’s ship chartering business provides Offshore Supply Vessel (OSVs) which are mainly Anchor Handling Tug Supply (AHTS) vessels currently being deployed in regional waters including the Gulf of Thailand, Malaysia and Indonesia, as well as tugs and barges to its customers, especially those engaged in the mining, commodities, construction, infrastructure and land reclamation industries.
The Group’s shipyard business undertakes ship building and maintenance as well as repair, outfitting and conversion services in Batam, Indonesia. Occupying a total land area of approximately 34 hectares with a seafront of approximately 650 meters, the modern shipyard also houses three dry docks which have led to the Group scaling up its technical capabilities and service offerings to undertake projects involving work of mid-sized and sophisticated vessels.

51 comments:

Sanguine said...

waited for what seems like an eternity for this....

if Mr Market does not react to the news tomorrow, i'm not sure what else is needed to bring MPM price to it's fair value...

quite excited haha

AK71 said...

Hi Sanguine,

Well, we can only do what we feel is right. Whether Mr. Market will oblige is something else altogether. :)

Zaanan said...

Hi AK,
However, $5.7 mil was due to an exceptional item right?

ZHANG Zheng said...

Hi AK
When I look at Marco Polo's 2Q result, I was worried. Can you please help to check whether my interpretation is correction?

Their total profit after taxation in H1FY2013 is 15419 (in unit of S$'000), which includes two one-off items. One is S$1.1 million due to relocation of one offshore vessel from Australia to Singapore and higher charter rates the Group enjoyed in Indonesian waters. The other is an exceptional item of 5,681 (in unit of S$'000, gain on equity interest).

If we take 1100 and 5681 out of 15419 (since they are one-off only), their actual profit after taxation in H1FY2013 is only 8638, which is 59 or 0.69% higher than 8579 achieved in H1FY2012. The profit after taxation does not seem grow very much.

In addition, one of their two business section, "Ship Building & Repair Operations" saw a 67.7% declined from 44.9m in H1FY2012 to 14.5m in H1FY2013. This is huge suffer in ship-buillding business, although the margin of this section is lower than that of "Ship Chartering Operations".

I agree that their "Ship Chartering Operations" will continue to do better in the next quarters. However, the poor-performed "Ship Building & Repair Operations" together with absence of one-off items makes me concerned about their overall performance in the future.

What is your take? Thank you for enlightening me.

Disclaimer: I am vested in Marco Polo.

Adrian Ong said...
This comment has been removed by the author.
AK71 said...

Hi Zaanan, Zhang Zheng and Adrian,

I think you guys are all talking about the same thing, more or less. You guys are right. Some of the profits is a one off event and I should not simply annualise the EPS in H1 FY2013.

I guess it remains to be seen if Marco Polo Marine will deliver stronger earnings in H2 FY2013 in the absence of the one off event mentioned. This has, of course, more of a qualitative slant.

Thanks for fleshing out my blog post. Much appreciated. :)

ryan said...

Hi AK, Aside from Marco polo results, would you comment / blog on Saizen's Q3 results?

Thanks a lot!

Cory said...

The CMF seems very different from POEMs generated format and data.

Is CMF = Chaikin Money Flow ?

AK71 said...

Hi Ryan,

I hope to find more time over the weekend. :)

AK71 said...

Hi Cory,

CMF = Chaikin Money Flow. Is there any other oscillator with the same acronym?

Cory said...

That's what i thought. But the Poems generated graphs do not look the same at all ...

JCK said...

Using Operational profit 1st half
of $11.078m

Est after tax profit $10.19m

Issued shares = 340.75m

Annualised EPS = 5.98 cents

@ 43.5 POS,

Est P/E is 7.27

AK71 said...

Hi Cory,

That is a mystery. My broker, Lim & Tan, use ChartNexus as well. So, I don't see any discrepancy...

AK71 said...

Hi JCK,

Usually, revenue in early part and later part of the year are somewhat lacklustre for Marco Polo Marine due to seasonality. Better weather should see income improving in the quarters of April to June and July to September.

So, annualising H1 FY2013 results might not give us an accurate picture of full year earnings. However, if things do not pick up as I expect, then, a full year EPS of 6c with a PER of 8x will still mean a fair value of 48c at least.

I wouldn't be jumping for joy but, for sure, I wouldn't be losing money either. :)

Jq said...

Why isnt MPM moving much at all? I thought the good report will probably push MPM price. Mr Market really shows no sentimental

AK71 said...

Hi Jq,

Mr. Market could be disappointed that most of the gain in EPS was due to a one off event. :)

Anyway, Marco Polo Marine's valuation is still inexpensive, imo, especially taking into consideration possibly higher earnings in the next quarter.

Will have to wait and see. ;)

Sanguine said...

Mr Market just has no love for MPM...

failed breakout on high volume...

back to slowly waiting...

AK71 said...

Hi Sanguine,

Well, I like to think that patience will be rewarded.

In the meantime, I will accumulate on further weakness. :)

seefei said...

O&M generally have a subdued quarter... I am quite happy with MPM holding its own during this bad patch. Any upside is a bonus and as I am already in the money should give more time to see out the performance. It is true you can't extrapolate the first quarter to arrive at the annual eps. Patience is called for and hopefully amply rewarded in the end...

AK71 said...

Hi seefei,

I agree. Looking at Jaya and ASL Marines' results, I think Marco Polo Marine didn't do too badly. In fact, it still looks inexpensive. :)

seefei said...

Ok I check again the revenue profile... Last Q ship building no business... Ship chartering rose 200%QoQ and 237% YoY

seefei said...

According to management ...
Slow down in ship repair and building is seasonal. Next qtr there is a possible OSV order.
Ship chartering will be the main driver; increase from 3 to 5 OSV and another 4 more OSV in 2014.

The above sounds very good and I can't help to load more...

AK71 said...

Hi seefei,

Yes, the main earnings driver is ship chartering and, more specifically, OSV chartering. With the cabotage law strictly enforced in Indonesia, the higher rates for OSV charters will persist. This continues to be a good reason to invest in Marco Polo Marine.

Ship building, repair and maintenance business is seasonal and I mentioned this earlier to JCK too. The next two quarters will likely see improvements.

In the meantime, we could see share price come under pressure and there could be opportunities to accumulate on the cheap. ;)

ozxinvest said...

OCBC's call is like making roti prata. A 20% upside (51c) is a hold for them? I think they are under pressure when their buy call did not perform well.

By Low Pei Han
Fri, 10 May 2013, 16:43:59 SGT
-------------
Marco Polo Marine (MPM) reported a 31% YoY fall in revenue to S$21.3m but a 121% rise in net profit to S$9.3m in 2QFY13, such that 1HFY13 net profit accounted for 58% of our full year estimate. Excluding an exceptional gain of S$5.7m, core net profit was about S$3.7m, slightly below our expectations. There was a slowdown in ship repair, and there were no external newbuild orders. However, management expressed the possibility of securing external OSV orders in the coming quarter. Meanwhile, the group is still upbeat on the OSV segment. YTD, MPM’s stock price is up about 11% vs the STI’s 8% gain. We tweak our estimates to account for the lower-than-expected performance by the ship repair division, and as such our fair value estimate drops from S$0.56 to S$0.51. As there is now a less than 30% upside potential for the stock (market cap less than S$150m), we downgrade MPM to HOLD.

AK71 said...

Hi ozxinvest,

There is always an element of subjectivity in fair value estimates.

Anyway, OCBC's estimate of 51c is very close to my own estimate of 50.5c which I shared here in my blog some time back. What does this tell us? Were they too bullish or was I spot on? The answer? The jury is still out on this one! ;p

Whatever the case may be, even at 42.5c, Marco Polo Marine is inexpensive. It is still a good investment but I won't be surprised to see some selling next week. I will be quite happy to add to my long position then. :)

ozxinvest said...

With the chairman vested at 42c and 43c, I guess anything below that would be a steal. :P

ozxinvest said...

Hi AK,

Asking people to hold when there is an estimated upside of 20% is as unreasonable as asking people to hold when there is a estimated downside of 20%.

Compared this with the other report by the same analyst on ASL Marine which is a buy call for a 26.4% upside ( taking 68c opening price at 9 May)
-----------------------------------
By Low Pei Han
Thu, 9 May 2013, 09:08:36 SGT

ASL Marine (ASL) reported a 26.6% YoY rise in revenue to S$144.0m and a 21.0% increase in net profit to S$9.6m in 3QFY13, such that 9MFY13 net profit accounted for about 71% of our full year estimates, within our expectations. Gross profit margin dropped from 14.0% in 3QFY12 to 13.0% in 3QFY13, and this was mainly due to lower shipbuilding margins and the inclusion of the Vosta LMG business. Looking ahead, the group expects the outlook of the offshore and marine industry for this year to be “good”, although competition seems to be increasing. We like ASL for its prudent management, healthy order books, diversified business model and growth potential from Vosta over the longer term. Maintain BUY with S$0.86 fair value estimate, based on 10x blended FY13/14F core earnings.
-----------------------------
Both present some earning uncertainties but with a different call.

Unlike those analysts reports, I always like your pragmatic price target and "unbias" reasoning.

AK71 said...

Hi ozxinvest,

What I find interesting is that the fair value estimate for ASL Marine by Low Pei Han uses a PER of 10x based on forward earnings estimate. This seems pretty bullish.

In the case of Marco Polo Marine, my fair value estimate of 50.5c was based on 8x PER using trailing 12 months earnings which is rather conservative in comparison.

Low Pei Han could be doing us a favour if the downgrade of Marco Polo Marine brings out the sellers which means we get to accumulate cheaper. ;p

letissier07 said...

Somebody from Indonesia bought a 12,000bhp AHTS from Nam Cheong. This vessel should be ex-stock. More competition in the Indonesian waters for AHTS > 10k bhp...

AK71 said...

Hi letissier,

I was just talking to some friends about how Marco Polo Marine might want to consider buying a couple of AHTS from other yards.

Building new AHTS in their own yard makes sense but the long leadtime is a disadvantage.

Of course, buying from a third party yard would mean higher cost and this could put a strain on the balance sheet.

ozxinvest said...

Hi AK,

As value investors, we often ask ourselves why are we buying the stock in the first place.

One of the things I like about MPM is that they could build their own ships at cost.

There is a big pie out there but I would rather MPM pick it up slice by slice rather than swallow the whole pie in one big gulp.

I believe the management have done their maths, given their foresight in the cabotage law.

AK71 said...

Hi ozxinvest,

I have no problem with the idea of being "slow and steady" if it wins the race and I believe Marco Polo Marine will win. ;)

ozxinvest said...

Hi AK,

OSK DMG maintains buy call (TP:61c).

MPM’s 2QFY13 results were slightly weaker than expected as poor
weather dampened the tug & barge operations while volumes at the
drydocks declined. We see much stronger core performance in FY14F
as its expanding fleet of Indonesian offshore support vessels (OSVs)
will enjoy a 30% revision when their charters expire.
 Surprisingly low drydock volume, protracted monsoon period in 2Q.
While the drydocks still posted a 75% utilization rate, the actual repair
work per vessel was uncharacteristically lower than average. This
resulted in the company’s quarterly revenue coming in at a mere
SGD4.8m versus SGD8m-SGD9m typically. The unusually long monsoon
season also negatively affected its tug & barge operations.
 Trimming FY13F core earnings by 13%; adjusting historical
numbers for comparability. We are paring down our FY13F core
earnings estimate by 13% as we had been a tad too optimistic on
subsidiary PT Bina Buana Raya’s (BBR)’s current-year contributions.
Notwithstanding this cut, we still see BBR growing at 40%-60% pa. for
the next three years. We are also adjusting MPM’s historical numbers as
it no longer recognizes revenue on vessels built for and sold to BBR,
preventing an apple-to-apple comparison. The adjustments still overstate
its FY12 earnings as its breakdown for third-party revenue is unavailable.
 30% charter revisions in 1QFY14F. The charter rates for BBR’s OSVs
should see a 30% increase to match Indonesia’s levels when their
charters expire in 4QFY13. Also, MPM expects the four AHTS vessels it
is due to deliver to BBR in FY14F enjoy Indonesia’s strong rates and
contribute to the 29% core earnings jump in FY14F.
 Strong core earnings growth, low valuations. In view of the robust
operating environment in Indonesia, we are forecasting a 20%/29% core
earnings growth for FY13F/14F. We like MPM for its: i) exposure to
cabotage-protected Indonesia, ii) high margin businesses, iii) strong
earnings growth, and iv) low 7.1x/5.5x FY13F/14F EPS and 0.88x/0.77x
FY13F/14F BV on 15% ROE. Our SGD0.61 TP is based on a 9x blended
FY13F/FY14F EPS.

AK71 said...

Hi ozxinvest,

Weakness in its share price is a chance to accumulate, it would seem.

Thanks for sharing the analysis. :)

teny123 said...

hi ak,
seems marco polo doesnt move alot lately.
what you think of nol(NEPTUNE ORIENT LINES LIMITED)? it has been hit triple bottom.

AK71 said...

Hi teny,

The last time I looked at NOL's chart, I said to myself that the counter could have found a strong floor, if not the bottom. That is all I can say. :)

ozxinvest said...

Mid year sales on :)

AK71 said...

Let us hope we get some bargains! ;p

SOLIDCORE said...

Hi AK,

With price of 41c holding for this couple of days, would you have the courage to buy some more?

Personally I've made a wrong mistake by buying at much higher prices (being a newbie investor for just a mere 5 months) but it's a lesson learnt and a lesson remembered.

AK71 said...

Hi Solidcore,

Technically, I see support at 41c and I bought more at 41c and also 41.5c. At these prices, to me, the stock is undervalued.

Was it really a mistake to buy at, say, 42c or even 44c? Well, if we were to look at the matter based simply on price, then, yes.

However, if we are buying something that is undervalued and as long as we buy when it is undervalued, it is not a mistake.

For example, if we feel that something is worth $100 and we got it for $80, it is a good deal. It is just that the deal could get better and maybe the same thing could be had for $70 today for some reason.

Of course, I like to consider the technical aspects as well. So, although Marco Polo Marine has support at 41c, if the support should break, we could see 39c next. So, I am keeping some powder dry just in case. 39c would be an even better bargain.

After all, it will be another 2 months or so before the next report by the company. So, price could drift lower. Who knows? ;)

SOLIDCORE said...

Hi AK,

Thanks for your very easy to comprehend and I would say, supportive words to allay some of my nagging mixture of fear/nervousness to sell them for a micro profit.

Well it is also true the next report might send this counter plunging but we don't have a crystal ball do we? :)

AK71 said...

Hi Solidcore,

Indeed, if you know a place that sells working crystal balls, please let me know. ;p

ozxinvest said...

Besides ship chartering and shipyard business, MPM is also venturing into bunkering business, a JV with Marine Tankers Holdings last year. I think this is not mentioned in any analysts' report albeit CEO mentioning this as an "potential engine of growth".

"As a start, the JV company will own and operate two double-hulled vessels due for delivery around July 2012."

"The JV company is expected to contribute positively to the earnings of MPM, whilst providing a stable and growing source of income to MPM with effect from the financial year ending 30 September, 2013."

Details http://www.sharesinv.com/articles/2012/04/24/marco-polo-marine-bunker-logisitics-joint-venture-marine/

AK71 said...

Hi ozxinvest,

This is definitely a good source of recurring income. However, it does seem as if this engine of growth is being back benched as the company concentrates fire power in ramping up its capacity to meet OSV demand in Indonesia.

ozxinvest said...

Hi Solidcore,

I wonder what makes you think the next report would send the share price plunging? So scary when I read your sentence.

Hi AK,

Singapore Bunkering business seems to enjoy good growth over the past years. I like that.

"Singapore bunkering market has experienced
resilient and unabated growth over the past few years. Total bunker sales increased from 25.5 million
tonnes in 2005 to 43.2 million, representing a compound annual growth rate (“CAGR”) of 7.8% over the
past 7-year period. While total vessel arrivals actually declined by 0.3% to 127,998 vessels in 2011,
vessel arrivals for bunker purpose had grown from 24,804 to 37,753 vessels, representing a CAGR of
6.2% over the 7-year period. Consequently, by 2011, about 3 out of every 10 vessels in Singapore are
here for the purpose of bunkering. Total arrival of vessels by gross tonnage has also grown from 349.6
million tonnes in 2005 to 652.7 million tonnes in 2011, representing a CAGR of 9.3% which incidentally
also indicated that the average size of vessels have increased significantly from about 20 million tonnes
in 2005 to about 30 million tonnes by 2011."

AK71 said...

Hi ozxinvest,

The growth is quite apparent. I like it too.

Marco Polo Marine is in a sweet spot except for its shipyard business but that, hopefully, will pick up in the next couple of quarters.

ozxinvest said...

Hi AK,

OCBC has lost interest in MPM. I think analyst preferred "exciting" stocks rather than "boring" stocks. LOL.
-----------------------------------
Marco Polo Marine: Ceasing coverage
After BBR’s listing on the Indonesia Stock Exchange early this year, Marco Polo Marine (MPM) has been increasingly branding itself as an entity for investors to gain exposure to Indonesia’s growing offshore sector. Demand for larger sized AHTS vessels in Indonesia is expected to increase, benefitting owners such as MPM. Meanwhile, the ship repair business has seen a slow-down, which management thinks is seasonal. The ship chartering business, on the other hand, provides a steady base load of earnings. The long-term future of MPM looks bright, but time would be needed for significant earnings growth and a re-rating of the stock. We last rated MPM a HOLD with a fair value estimate of S$0.51. Due to a re-allocation of internal resources, we are ceasing coverage on this counter. (Low Pei Han)

AK71 said...

Hi ozxinvest,

I guess we will have to give them the benefit of the doubt and that their resources are indeed limited. ;p

Anyway, as Marco Polo Marine's share price drifts lower, the margin of safety is increasing.

Now, if we look at the chart, the rising 200d MA is at 38.5c. Will we see 38.5c tested? No one knows but if it should be tested, I know what to do. ;)

David & Thi said...

Anyone buying more during this correction?

Scoop of the Day: MPM announced that its associate PT Bina Buana Raya (BBRM) has acquired a 9,000bhp AHTS vessel to be deployed in Indonesian waters.

---> Channel checks indicate that this is a bargain-priced asset, resulting in an ROE of 90% on this vessel. <------

Our calculations further show that future assets,purchased at market prices, will still enjoy a 60% ROE at the prevailing charter rates. FY13 is a year of consolidation and preparation for a bright FY14. This
year saw BBRM being listed and MPM hiring a new team of Offshore veterans to spearhead the growth of the Offshore Support Vessel (OSV) fleet.

We cut FY13F EPS by 6.3% given rising overheads and maintain our FY14F EPS as the vessel addition is in-line with our model, which assumes four more vessels to be
delivered over FY14-15. We see 39% EPS growth in FY14F from: i) 30% jump in rates from renewal of charters in Oct-Nov; ii) doubling of the Indonesian OSV fleet; and iii) shipbuilding orders and higher drydock volumes. Current valuations
have priced in a slow FY13F. MPM is in deep value territory at a mere 4.9x FY14F EPS with 39% growth on the horizon.

Further, it is trading at a current P/B of 0.85x while delivering 15%-16% ROE. The recent pullback is pure market noise, and offers an extremely attractive entry point to gain exposure to the lucrative Indonesian OSV market.

AK71 said...

Hi Yee,

Yup, buying more shares of MPM now is buying at a 15% discount to NAV. There is definitely good value. :)

I like that they have bought an AHTS so that they can more quickly capture more business instead of waiting for the new builds to be completed in their shipyard. This is something I have suggested before as well.

MPM's growth story is an exciting one and is very much intact. At the current prices, it is a resounding buy for me. :)

AK71 said...

A potential value play is Indonesian- based OSV charterer Marco Polo Marine, one of the few operators with direct exposure to Indonesia’s booming oil and gas industry. Owing to the recently implemented cabotage rules, many foreign operators have been forced to abandon their operations in the country, leading to a shortage of capable OSV charterers and causing charter rates to rise rapidly. “With charter rates in Indonesia currently 30% to 40% higher than other markets, whoever owns the OSVs in the country is going to see some very nice earnings,” says Lee.

Indeed, at least four Marco Polo Marine OSVs are expected to complete their current charter terms within this year and next, and Lee expects the charters to be renewed at better rates. Shares of Marco Polo Marine are down 2% from the start of the year. At its closing price of 37.5 cents on June 20, the stock is trading at 4.8 times earnings. “This is a good level for investors to enter the stock,” says Lee.


Kang Wan Chern
Monday, 24 June 2013 22:11

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