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Marco Polo Marine: Employee Share Option Scheme.

Tuesday, September 17, 2013

One reason why I like Marco Polo Marine is the large stake which Mr. Lee Wan Tang has in the company. If insiders have a large stake, their interests are more likely to be aligned with those of minority shareholders'. Any action to hurt the interests of minority shareholders' will likely hurt their own.


I also like the fact that Mr. Lee Wan Tang's son, Mr. Sean Lee Yun Feng, who is also the CEO, and daughter were granted share options on 24 April 2013 with an exercise price of 41.5c. 30% of the share options are allowed to be exercised on the 1st anniversary of the date of grant, not earlier.

Anyway, it is unlikely that anyone would exercise the options now even if they could as the share price is currently quite a bit lower than 41.5c. By end April 2014, up to 30% of the options could be exercised if share price were to rise above 41.5c, I suppose.


Mr. Sean Lee
This tells me that there is an even greater incentive for Mr. Sean Lee Yun Feng to steer the company towards higher earnings in 2014 (which would likely result in a higher share price) if he were to benefit from these share options. If you think that this looks like a strong alignment of the management's interests with those of minority shareholders', I won't disagree with you.

All else being equal, favour companies in which management has a significant personal investment over companies run by people that benefit only from their salaries. Peter Lynch.
Read page 235, One Up On Wall Street.

Patience is sometimes the hardest part ... There is simply no way to know when a particular stock will appreciate, or if, in fact, it will.
From: http://singaporeanstocksinvestor.blogspot.sg/2013/02/little-book-of-value-investing.html

See:
Employee Share Option Scheme.

Related post:
Marco Polo Marine: It got cheaper.

31 comments:

Cory said...

This makes perfect sense to me. This gives us better probability to succeed. No wonder you keep singing this one.

AK71 said...

Hi Cory,

I cannot sing to save my life. I am practically tone deaf. If you like my singing, you are in trouble. -.-"

Musicwhiz said...

Hi there AK71,

Who is Mr. Lee Wan Tang? How many % of the company does he own?

Share options are pretty common instruments and their exercise price is almost always higher than the current share price. Would this imply all companies with such options would then be much more motivated to add to shareholder value and to enhance shareholder returns?

The answer is that Management always does have a vested interest to build and grow the business, as they are usually the founders or who may own significant stakes. Share options are usually given to senior management who do not have a stake in order to encourage them. So in this case, does the CEO already own shares in the Company? If so, why vest more share options?

And is there a share option or share granting scheme for the exemplary employees in order to motivate them?

Thanks.

Cory said...

Cheer up leh. Simi life & "death' ... Just SPENT your way out lah. Go get a personal singing teacher lor. If you are afraid someone will hear, go for sound proof room lor. Close the door and hear only both your sounds. kekekeke.

Solace said...

Hi AK,

If i were to add on to your last statement on patience,

in short term,Mr Market is a emotional guy who can buy or sell stocks at depressed on inflated price.

Over the long term,Mr market prices stock base on their value. Keep a long term investment view for marco polo.

Bargain opportunities will generally go to the investor who keep the disparity between price and value in mind, rather than those who make decision based on emotions.

AK71 said...

Hi MW,

Mr. Lee Wan Tang is the Chairman of Marco Polo Marine. His direct and deemed interest in Marco Polo Marine is just under 60%.

See: Insider buying continues.

The highest price he paid was 43c a share for 500,000 shares on 14 March 2013.

To the best of my knowledge, this is the first time the CEO has been given share options. I certainly hope he is motivated. :)

AK71 said...

Hi Cory,

I rather not waste money. LOL.

Thanks for the encouragement but a singer I am not meant to be. ;)

AK71 said...

Hi Solace,

Well said! I agree. :)

It is just like the case with Yongnam. Buying at under 26c (i.e. the NAV/share) couldn't have been that bad an idea since the assets Yongnam owns should command a premium. ;)

coven said...

Hi AK, any special reason why u are not keen on Nam Cheong instead?

AK71 said...

Hi coven,

Nam Cheong? I think I missed the boat. ;)

The share price was under 20c last year. Look at where it is now. It is 60% higher now. PER at current price is 9 to 10x maybe? Can EPS grow faster? Maybe. I don't know enough to comment.

Nam Cheong's business model of building first instead of waiting for orders has put them in a sweet spot as the OSV cycle swings up. However, is it sustainable? Did shipyards which were using such a model run into any trouble in previous cycles? Is Jaya a good case study?

With Marco Polo Marine, they are building OSVs for their own use instead of selling them. Indeed, they are opportunistic when it comes to buying OSVs to expand their fleet as well. I believe that having a strong moat will result in sustainable longer term growth with supernormal margins to boot.

With Nam Cheong, it feels like the growth story has been priced in (but price could certainly go higher) while Marco Polo Marine feels like a laggard to me. I like investing in laggards since people seem to have lost interest and are looking elsewhere. :)

Both companies have free floats of slightly more than 40%. So, if buying interest is high, share price could move higher quite rapidly. We have seen it happened with Nam Cheong. Could we see it happening with Marco Polo Marine?

While Nam Cheong's share price has risen 60%. Marco Polo Marine's share price has moved up a paltry 20% in the same time frame with a trailing 12 months PER of 7x. With OSV chartering's margin likely to improve some 20 to 30% in the next quarter or two, PER is likely to become lower.

People are excited in stocks which have moved. I am more excited in the ones which have not but I could be wrong, of course. :)

Capricon said...

Hi AK,
Otto Marine was featured in latest issue of The Edge, they are moving into OSV chartering too and seem positive base on recent results. What is your thoughts about them? Potentially a turnaround play ?

Thanks

AK71 said...

Hi Capricorn,

I read that article in The EDGE too. It got me interested enough to go dig around for more information. It does look like a potential turnaround story.

As I spent time digging around the last few days, the share price shot up on the back of high volume from 5.5c to 6.3c. Looking at the chart, it could hit 7c too before it encounters resistance. -.-"

In many ways, Otto reminds me of Marco Polo Marine including the size of its free float. However, its track record is somewhat spotty with two years of massive losses and their net gearing ratio of 1.9x now scares me.

Otto is somewhat bigger than Marco Polo in terms of market cap and they seem to be more aggressive in their strategy which could yield stronger results given the upturn in the OSV sector.

However, I sleep better at night investing in Marco Polo Marine as it has a stronger track record and balance sheet which is probably the result of a more conservative management.

See: Otto Marine: 2Q FY2013 Update

letissier07 said...

Speaking of Nam Cheong....they just entered into a JV in Indonesia

AK71 said...

Hi letissier,

A good move, I believe, but BNI is a very small player in Indonesia. I think Nam Cheong should have been more aggressive. :)

"NAM Cheong's subsidiary Nam Cheong Pioneer Sdn Bhd (NCP) has entered into a co-operation agreement to jointly invest in a shipping company in Indonesia.

"The agreement was made with PT Bahtera Niaga Internasional (BNI) and a certain Ms Nelly, an Indonesian citizen.

"NCP will acquire 49 per cent of the joint venture firm, PT Bahtera Niaga Indonesia, from BNI for US$1.5 million.

"Nam Cheong says that this new venture is in line with the group's corporate strategy to grow its presence in Indonesia and strengthen its position as a global offshore marine player."

The Business Times

Tan said...

Hi AK,

How to get the Net Gearing 1.9x for Otto Marine, I tried to calculate myself from their latest financial report but couldn't get 1.9x, could you teach me?

What is the net gearing for Marco Polo?

Regards,
Gregg

Tan said...

HI Ak,

Please ignore my previous post, i have gotten the answer, (Debt minus Cash & FD)/Total Equity...

Sorry for the "brainless" question. :)

Gregg

Tan said...

HI AK,

Did you consider Jaya HOlding?
Its cash on hand is more than enough to pay off their debt (came from disposal of their vessel).

Gregg

AK71 said...

Hi Gregg,

I like Jaya's net cash position and I like how it pays dividends generously but I wonder how sustainable is it.

Jaya sold away 2 vessels to boost profits this year, sacrificing recurring earnings for the next year. Killing the goose that lays the golden eggs?

Consequently, EPS might not grow and ROE stays relatively low.

There are stocks we invest in for income and there are stocks we invest in for growth. Jaya is in an industry where we should find cyclical growth but it doesn't seem to be very promising in this aspect.

Tan said...

Hi AK,

Today hand itchy... added another small position in Marco Polo... lol..


Gregg..

AK71 said...

Hi Gregg,

You have just bought at an 18% discount to NAV and a trailing 12 months PER of 7x. Fundamentally, not expensive at all.

I very much believe that EPS will expand at least 20% in 2014 but I could be too conservative. This means that you are buying at a forward PER of some 5.8x. If EPS expands 30%, then, it would be only 5.4x.

For anyone who has a 12 to 15 months investment horizon, Marco Polo Marine is not a bad investment at all. :)

yeh said...

hi ak,
congratulation for our marco polo..

hehehe,

i can buy one LV bag this month...
hehehehe....

AK71 said...

Hi yeh,

Big movement today on big volume. Good things come to those who wait, perhaps. ;)

SOLIDCORE said...

Hi AK,

Wow! I was amazed at MP's pop today. Touching a high of 42cents thus far, it's amazing how it jumped more than 10%.

Looks like Mr Market is tired of waiting around with cash and is in the mood for some buying.

AK71 said...

Hi Solidcore,

The move today is positive but I would like to see confirmation tomorrow especially when there is a long wick on the candle. ;)

SOLIDCORE said...

Hi AK,

On days like this, taking a hint from Saizen's recent pop as well, more likely than not there will be a consolidation of money being taken off the table.

A confirmation tomorrow and Friday will shed more light to my mere guesswork :)

Cory said...

It won't makes perfect sense if i have no positions. But i sold some on the way ... sian zzzzz

LV bag is how much ?


AK71 said...

Hi Solidcore,

Well, I definitely do not know what Mr. Market is going to do. I can only wait to see how things pan out. ;)

AK71 said...

Hi Cory,

You made money, no? :)

I didn't know you like LV bags. ;)

Gary said...

Hi AK, Marco Polo share price went up to $0.40!

AK71 said...

Hi Gary,

A group of investors visited their yard in Batam recently. Could be related. :)

Gary said...

Hi AK,

I saw your newest post! =)

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