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Marco Polo Marine: Drilling for higher income.

Thursday, February 27, 2014

I am going to take another trip down memory lane and this time to look at why did I invest in Marco Polo Marine. Then, I will look at the most recent development in the business.

I first invested in Marco Polo Marine in the middle of 2012 when I spotted persistent insider buying. I got in at 31.5c and 32c a share. Since then, I have been accumulating. The highest price I paid was 42c a share and the last time I bought more of its stock was on 24 June 2013 at 37.5c a share.

The combination of a few factors gave me the conviction to make Marco Polo Marine the largest investment in my portfolio:

1. Insider buying.
2. Chairman of the company has close to 60% stake.
3. A relatively consistent ROE of about 15%.
4. Timely emphasis on building a fleet of AHTS vessels.
5. Enforcement of cabotage laws in Indonesia.
6. Relatively cheaper valuation compared to peers.

A complaint I had was that it was moving too slowly and I wished that it would leverage up and buy OSVs to immediately take greater advantage of the higher charter rates in Indonesian waters.

In the current climate, it is hard to buy OSVs at what might be considered good prices and it is not difficult to understand why. So, Marco Polo Marine would rather build OSVs in their own shipyard than to buy from others. However, they did manage to get a good price for MP Prevail last year. I think that shows that the management is rather savvy when it comes to acquisitions.

With their gearing level on the rise, however, I was rather concerned about the strength of their balance sheet but if the business chugs along with the progressive deliveries of the OSVs being built in their shipyard, we should see progressively stronger earnings in the next couple of years, everything else remaining equal.

Of course, we now know that everything else did not remain equal because Marco Polo Marine issued some MTN and decided to buy a jack up rig. This was totally beyond my expectations and it took me a while to digest the news.

My initial reaction was to ask how Marco Polo Marine, a company with a market capitalisation of S$135 million, was going to pay for a US$214 million rig? That was a natural reaction. However, when we think of the S$300 million MTN they have in place, it all makes sense.

Marco Polo Marine drew down S$50 million in MTN in the last quarter and this attracts some S$0.7 million in finance cost every quarter. As they only have to pay 10% of the rig's total bill this year, I have an inkling that they might use the remaining money to pay down debt. They only have to pay another 10% of the rig's total bill by 11 February 2015. The balance 80%, they only pay when they take delivery of the rig in 4Q 2015.

What this means is that we could see lower profit this year. However, if some debt is paid down and if the two 8,080 BHP AHTS vessels are completed on time, we could see the impact lessened. Assuming the status quo, then annualising 1Q 2014's numbers, we could see a 22% reduction in EPS to approximately 4c or so, year on year. This assumption is, of course, unrealistic, and would form my worst case scenario for the company.

The cabotage law in Indonesia will include drilling rigs by December 2015 and to time the delivery of the rig in 4Q 2015 really makes sense. There is no need for a huge capital outlay in the meantime while Marco Polo Marine sees more own built OSVs joining its fleet in the next two years which should improve earnings as the vessels enjoy higher charter rates.

When the time comes to take delivery of the rig, Marco Polo Marine should be financially more robust but it would still need to draw from its S$300 million MTN program to pay for the rig. This is the hard truth but it is good to know that financing is in place.

Chances are high that Marco Polo Marine will be able to secure a contract for the rig a few months before they take delivery of it. Chances are also high they will be able to get pretty good rates as there is a lack of such high specs rigs in Indonesia and, of course, the enforcement of cabotage law in the country for rigs by then tilts the scales in Marco Polo Marine's favour.

Now, how significant an income contributor could the rig be?

According to AM Fraser, the Pacific Class 400 jack up rig which Marco Polo Marine ordered commands a day rate of some US$ 160,000 in Thailand. With the cabotage law in Indonesia, the rate could be higher when Marco Polo Marine takes delivery of their rig end of next year. I know that AHTS vessels enjoy a 20 to 30% premium in Indonesian waters. Could we expect the same kind of premium for rigs come December 2015?

If we were to do some quick mental sums, we would be able to conclude that this is probably going to be a very good investment. Simplistically, just putting the rig to work 11 months in a year could bring in some serious money without factoring in any possible premium. In such an instance, the return on the investment would quite easily exceed the 5.75% coupon payable on the MTN.

So, my assessment of this latest development is that it will lead to some short term earnings depression due to higher finance costs but it is not going to cause the company any distress. By 2H 2014, things would start to look up and by 2015, with more AHTS vessels in its fleet, enjoying higher charter rates, earnings would look even better. Then, when the rig is delivered by end of 2015, we should see a big boost to earnings, if everything goes as planned.

Do we share Sean Lee's vision and are we able to take the same leap of faith? Or do we think he has a few loose screws in his head?

Related posts:
1. Marco Polo Marine: Exciting times ahead.
2. Marco Polo Marine, Mermaid Maritime and Jaya Holdings.


seefei said...

tempted to ask u about this new development earlier. thanks for this timely post. Beside the existing order, MPM has the option for two similar rigs. not surprisingly, the counter price jumped on this news. now, we cant accuse MPM has no ambition.

AK71 said...

Hi seefei,

Work was really tiring today and I tried my best to produce a coherent blog post. I hope I have not done too poorly.

If you spot any mistakes, please let me know.

I would like to do a blog post on Croesus Retail Trust next but I don't think I can muster enough energy to do it now.

As for MPM, one has to wonder now if they are being too ambitious. LOL. ;p

Capricon said...

Hi AK,
I read your previous posts on MPM and cabotage laws but have some doubts. If MPM can reflagged to comply with the cabotage laws, why can't the competitors do so especially if there are high demands of vessels in Indonesia ? jaya is Indonesian too.


AK71 said...

Hi Capricon,

Foreign competitors can enter into JVs with Indonesian counterparts. That is something that is happening now. This is why higher charter rates for OSVs are not going to stay forever. There will come a day when the rates see a mean reversion.

How long will the higher charter rates last? Honestly, I have no idea. A while more, probably. ;)

As for Jaya Holdings, I remember they said 3 of their vessels were evicted from Indonesian waters because they did not fly the flag. Anyway, Jaya Holdings is going to be a shell company soon.

Matthew Seah said...

Hi AK,

Thanks for the due diligence!
No need to do more on my part liao >.<

AK71 said...

Hi Matthew,

I wasn't aware that you were vested. Please do share your views. Much obliged. :)

jason said...

i believe the key here is whats price of crude come 2015? anything below US$65 is negative for oil majors and they have 2 years to learn how to operate/manage it. Plenty of what ifs till then.

AK71 said...

Hi Jason,

Definitely, there are risks. Can they pull this off? I guess we will have to wait and see.

AK71 said...

3/4/5-year earnings CAGRs of 32%/38%/32%, assuming 2nd and 3rd
options are exercised under 50% JV.

We believe that MPM has the
financial muscle to own the first unit outright, but for the second and third units, it is likely to require financing from JV partners.

Assuming it owns 50% of units #2 and #3, and taking their mid-year contributions into account, MPM’s earnings CAGR over a 3/4/5-year timeframe will be 32%/38%/32% vs that for FY14F.

This also assumes no organic growth in its current operations beyond FY15F. In other words, the company’s FY16-18 net profit could come in at SGD42m/66m/72m.

Raising TP to SGD0.65, on 12x FY14F P/E.

Our TP, based on 5x FY16F earnings, incorporates a maiden nine months’ contribution from
the rig.

This also implies more potential price upside. MPM is rapidly
scaling the oil & gas value chain, with the rigs business becoming a new long-term growth driver as well as strong re-rating catalyst.

It still trades below book value. Maintain BUY, reiterating our conviction call.

OSK DMG - 27 Feb 2014

Gary said...

MPM is going to ask for an EGM to have approval in the rig construction contract...is this something new business domain for MPM?

AK71 said...

Hi Gary,

It is something new but it complements what they are already doing now. There is synergy, in a way. :)

It is going to be a major transformation and if it works out, we could see EPS more than double.

So, some people say Sean Lee is a visionary and some say he is a mad man. Time will tell. ;)

Gary said...

Did u mention before that on one of ur blog posts that they are going to do this business domain? I mean not on the comments section but a blog as I thought you might have written something about this.

AK71 said...

Hi Gary,

I don't think I ever expected Marco Polo Marine to become a rig owner. So, no, I don't think I would have written about this before.

This blog post is probably the first one on its venture into rig ownership and chartering.

Gary said...

OK. Thanks for sharing! I share the same sentiment with you on Sean Lee. Time will definitely tell! Maybe when I reach 60!

AK71 said...

Hi Gary,

Yikes! We should know by 2016. Are you 58 now? :o

Gary said...

Still got a long way before hitting 60! =D

Janice said...


Are you still holding on to Marco Polo?

AK71 said...

Hi Janice,

Yes, I am. Still a rather significant part of my portfolio. :)

ozxinvest said...

Hi AK,

I wonder why no one mention about the $22.5m AHTS that MPM sold to Logindo in May? Assuming a profit margin of 20% from the sale, it could have cushioned the negative impact from the tug and barge business and financial cost for this year. One more AHTS addition coming Aug. Looks like it's being unloved for now, yum yum :P

AK71 said...

Hi ozxinvest,

One off gain from sale of vessels is good to have. They were building AHTS for third party too. Thanks for the reminder. :)

I am however more concerned about recurring income (and losses) with a big ticket item in the shape of a jack up rig coming end of next year. Of course, the financial expenses for initial funding of that purchase is recurring. So, we want to see stronger recurring income over time.

Of course, all investments are good at the right price and if the share price should decline further, I would be tempted to buy some, all else remaining equal.

ozxinvest said...

With one AHTS being built every quarter, I think the chances of recurring one off gain are high.
I would scale in and buy more if the price should decline further.

AK71 said...

Hi ozxinvest,

Yes, I am on the lookout to accumulate on any further weakness as well. :)

sillyinvestor said...

Hi Ak,

Pardon my wrong copy and paste of comment at your post on Singaporean.

Because of its messiness, you might have miss my question.

Regarding the rig they are building, I understand that they have but chartered it. Are you confident they can chartered it? What analysis u do that give you the confidence?

Would like to learn demand and competition analysis from you..

Hope to hear from you...

AK71 said...

Hi Mike,

I am attaching the link to my reply for the benefit of other readers: My reply. :)

ozxinvest said...

There has been a slew of bad news from the shipping and offshore O&G industry recently which I think resulted in the general sell down of shipping stocks.

However,these are some factual information for MPM from their IR:

Bunker Division:

MPM is a barge operator for it's bunker division and has no exposure to the recent OW Bunkers Bankruptcy, mostly affected are those fuel traders.

On lower oil price:

Short term wise, it lowers the cost of operations as their OSVs are on time charters, i.e. charterer bears the cost of fuel.

Mid term and long term wise, lower cost of oil spurs economic activities and hence higher volume. For E&P, Capex and opex are lower for Jackup as opposed to semis and drillships.

There are always two sides to the story to believe, whether it's a failure or a success, we won't know for sure. The earning results for the next 2 years will speak for themselves.

AK71 said...

Hi ozxinvest,

Appreciate the constant updates. Keep them coming. ;)

I still like the story that is Marco Polo Marine. Although I feel that their expansion plan is very ambitious and perhaps a bit rushed, this could really transform the company into something bigger and better, if all goes well.

Although taken by surprise when they announced their plan to buy a new jack up rig from SMM and I have taken the necessary steps to reduce exposure given the higher risk profile of the company with that move, I will wait to see if the company delivers better results over time. We will know by 1H2016.

Sean Lee has shown foresight so far in transforming the company, bringing it to where it is today. The purchase of a jack up rig which is, of course, a huge ticket item for the company is his boldest move yet, imo.

I know the numbers are not great and it is likely to remain so for some time to come given the weakness in its tugs and barges business. However, sometimes, we just need to take a leap of faith but try to make sure that if we do not make it to the other side safely, we do not fall into a deep crevice. :)

ozxinvest said...

MPM Q4 and FY2014 results are within expectation. I am still quite comfortable with the results though the growth expansion and drag in tug/barge division have put a great amount stress to it's balance sheet and net profit margin.

Some plus points:

Revenue has actually gone up compared to FY2013 and 2 more new vessels have been chartered out with multi year contract in sept and oct. Another one is due for delivery to a customer in FY2015 ( I suppose it to be in early 2015).

NAV has increased to 49.4c, at 30c per share, it is trading at a discount of about 40%. However, EPS stood at 2.98c as compared to 6.56c last year.

Although no dividend was declared in this quarter which is within expectation, the company did a surprise share buyback yesterday at an avg price of about 30c for 1,107,000 shares. The company can buyback about 34mil shares.

By lending a support at current level which the company thinks is overly undervalued, it is as good as giving out dividend, if not better, and shows the company has the cash on hand to buyback. I actually prefer share buyback as it reduces the outstanding shares and bump up eps. It also benefits existing shareholders.

More vessels are joining the fleet in the next few quarters and osv rates are still in the elevated range.

Minus pts:

Still no sight of turnaround from the tug and barge business from the BBR results but still it has not fallen into the red. Management has intention to scale down T&B and concentrate on OSVs and hopefully the new Indonesian government could create more O&G activities and go ahead with the delayed ones in coming months.

After 9 mths, the company has yet to secure a rig contract or a strategic partner for the rig division but it has recently got into a JV with Nam Cheong and the latter intends to take up a stake in BBR. Some synergies should spark off from the collaborations with Nam Cheong.

Come February 2015, company is probably going to draw down the MTN to pay for another 10% for the rig which means more debts ahead, however, after Nam Cheong invests in BBR, the company could pass on some debts to NC and reduce it's group gearing due to BBR vessel loans as illustrated in one recent analyst's report.

Oil price is putting a dent in the O&G market sentiment, but the mitigating factor for MPM is Jack up is operating in the shallow water and so capex and opex in this sector should not be affected unless oil price drops to extremely low level, moreover low oil price could lower operation cost and thus increase activities in the short term.

Pls correct me if i'm wrong in any info and opinions above.

Vested and still scaling in.

AK71 said...

Hi ozxinvest,

Thanks for weighing in on this. Your detailed comments are always much appreciated. :)

Coincidentally, I just published a blog post on MPM a few minutes ago. ;)

ozxinvest said...

Haha..If I have known you are going to write that post I would have shortened my comments...

Really missed the updates from you and Gregg (Tan?).

AK71 said...

Haha.. I have grown a bit "lazy". Thank you so much for commenting regularly and such high quality comments too.

You should be a guest blogger. ;p

ozxinvest said...

Nah, those comments are just facts not much of quality. I prefer reading than writing. Anyway, thank you for inviting :)

ozxinvest said...

While MPM stock price is trading at 52wk low at 27c, BBRM touched 52wk high recently at rp260 (52wk low at rp65)

Progress of BRRM right issues:

JAKARTA -- Shipping company PT Pelayaran Nasional Bina Buana Raya Tbk (BBRM) will buy eight new vessels valuing US$170 million, part of the purchase will be funded by the rights issue proceeds amounting to Rp371 billion. According to a prospectus, it will buy three vessels from Marco Polo Shipyard Pte Ltd, comprising of one Anchor Handling Tug Supply (AHTS) vessel 8.000 HP and two AHTS vessels 12.000 HP. It will also buy five vessels from Nam Cheong International Limited, comprising of three AHTS vessels 6.500 HP and two Platform Supply Vessels 75 M. BBRM will issue at most 1.613 billion shares at price Rp230 each. Holders of 100 shares will get the 43 rights, each entitles the holder to buy one new share. The price is premium compared to its current price at Rp175 per share. Besides buying vessels, the company will use the proceeds for working capital. If shareholders do not execute their rights, their ownership will be diluted and Malaysia-based Nam Cheon is ready to buy 29.81% shares of BBRM in the corporate action. At the same time, its former shareholder Marco Polo has announced that it will not execute its right. The recording date of shareholders having the rights is November 25, 2014. Cum and ex rights in the regular and negotiation market are 20 and 21 October 2014, in cash market are on 25 and 26 November 2014. The rights will be traded within period 27 November to 3 December 2014.


JAKARTA -- Shareholders meeting of shipping company PT Pelayaran Nasional Bina Buana Raya Tbk (BBRM) approved changes in management, following the plan of Malaysian entity Nam Cheong to become a shareholder after a rights issue.
The meeting on November 13, 2014 approved the resignation of Loa Siong Bun from his post as President Director. At the same time, shareholders approve the appointment of Joseph Charlie Lie as President Director with tenure ending on August 6, 2017.
Moreover, shareholders agreed on the appointment of Leong Seng Keat as Commissioner and Tiong Chiong Hiiung as Director effective after Nam Cheong Pioneer Sdn Bhd completes its obligations as the standby buyer of the company's Rp371 billion rights issue.
The new management is as following.
Board of Commissioners
President Commissioner: Mr. Latip
Commissioner : Mrs. Sally
Commissioner : Mr. Leong Seng Keat
Commissioner : Mr. Hendra Iskandar Lubis
Commissioner : Mr. Abdurachman
Board of Directors
President Director: Mr. Joseph Charlie Lie
Director: Mr. Sean Lee Yung Feng
Director: Mrs. Liely
Director: Mr. Tiong Chiong Hiiung
Director: Posma Lumban Tobing


Oversupply of rigs? Read the report below, although the report is written a year ago, I think it is still relevant for rig replacement cycle, whether the recent "oil price crisis", which is nothing new and just like other forms of crises that always cause panic and create opportunities, has changed anything in the longer term, is really up to one's own judgement and ability to stay calm in the middle of the storm.


AK71 said...

Hi ozxinvest,

Appreciate the update very much. :)

Actually, I am very close to adding to my long position in MPM. I kind of have an eye on 25c or so but I probably shouldn't blog about it. ;p

ozxinvest said...

No worries AK, there will always be people who are willing to sell a dollar to you for 50c, that's why you are the millionaire and they are not. :P

With it's fleet doubling next year, I guess even at 30c, it is already way below 50c for that dollar.

Hopefully one day, the same people will buy from you again with 2 dollars for 1? Possible?

AK71 said...

Hi ozxinvest,

Oh, you remember why I am looking at 25c. LOL. Cannot hide things from you, I see. ;p

Well, to be fair, I have been wrong before and I could be wrong again. There are some risks involved here and things could go bad. It is all a calculated risk.

A smaller exposure to MPM was required by my asset allocation framework. It was not because I thought MPM was no longer a good investment.

If I thought that MPM was no longer a good investment, it would have been fully divested like some other stocks in my portfolio in the past.

This could be lost on some readers, I realise. -.-"

I will be quite pleased to make a decent gain from my investment in MPM and I think, eventually, I will. ;p

ozxinvest said...

Sean Lee Yun Feng on Bina Buana/Nam Cheong investment, expansion plans -

See more at: http://www.idnfinancials.com/videos/watch/444/bina-buana-on-nam-cheong-investment-expansion-plans

AK71 said...

Hi ozxinvest,

Appreciate the video link. Thanks very much for this. :D

ozxinvest said...


1. New Maintenance
and Accommodation Work-boat vessel contract. (Malaysia)

2. Renewed existing contracts and options exercised. ( Indonesia/Australia/Thailand)

3. Foray into new market with MP PROWESS maiden contract. (Vietnam)

"The abovementioned contracts are expected to have a material and positive impact
on the Group’s earnings per share or net tangible assets per share for the financial
year ending 30th September 2015."


AK71 said...

Hi ozxinvest,

Good news! This is a reason why we invest in Marco Polo Marine, a competent management. The way they navigated the rough waters of the GFC was evidence of this.

However, a fear Mr. Market has is that they might have bitten off more than they can chew with the oil rig they ordered from SembCorp. Well, time will tell.

I am hopeful that Marco Polo Marine will deliver good news again amidst all the scepticism.

ozxinvest said...

Agreed. I like fear more than I like greed when buying stocks, in this case the oil price slump. Clearly, we can see and compare how companies in the industry react and expose their weaknesses or strengths during tough times. I see strengths in MPM.

We could become better investor only when we are able to control our greed and embrace our fear.

What can I say about the fear about the rig business? It is more risky to give up now than to hold on to it.

Well, I may be wrong, always.

ozxinvest said...

Sharing a nice blog to follow up on Jack Up markets.

Extracted from Icarus Consultants:


"...Indonesia still maintains they will enforce cabotage in January 2016. Under this already existing law, only Indonesian flagged vessels and rigs will be permitted to work in Indonesia. To be flagged requires 51% Indonesian ownership which will should help Apexindo, KS Drilling and Marco Polo but theoretically lead to a mass exodus of non-Indonesian flag units and the shut-down of most offshore activities within the country. We shall see..."

Read more at https://icarusconsults.wordpress.com/2014/12/23/regionalization-does-it-spell-the-end-for-international-jackup-contractors-in-the-asia-pacific/

It is also published at oilpro.com with comments.

Hopefully MPM do have something up her sleeve and not as speculative as the market now presume.

Did a check on rigzone, rig utilization by region has dropped from 80% to 74.3% for southeast asia region, by rig type (Jack Up) from 84.6% to 73.7%. However, Average Day Rate seems to hold up quite well at $179K (assuming Marco Polo Jackup TBN 1 falls under Jackup IC 300'+ WD, maybe some experts out there can verify this? AK?)

10 more months to delivery. Last month BBRM had also completed the rights issue whereby Nam Cheong had taken up abt 30% stake in BBRM. We might see MPM Q1 results being deconsolidated from BBRM. Hopefully, things will start to look up from here as more new vessels (abt 13 OSVs) are put into work in 2015/2016.

AK71 said...

Hi ozxinvest,

Thanks for sharing this. Much appreciated. Incidentally, I share the same view. :)

Although I have every confidence in Marco Polo Marine's management and I have expressed this many times before, there is an element of uncertainty with regards to their rig.

The strategy is a sound one but the rig is something new to MPM and I am somewhat concerned with regards to execution.

Having said this, valuation is rather compelling now and if I could pick up more of MPM at a lower price, all else remaining equal, I would most likely do so. ;)

ozxinvest said...

MPM AGM: A pleasant surprise.

Did not intend to ask any questions during AGM as I don't think can get any material info out of it,
but got a pleasant surprise from sean lee when he initiated to chat during the tea time buffet after the meeting while I was munching a sotong ball.
Did clear some of my doubts from words coming out from the CEO's himself.

Sharing some takeaway, observations and my own interpretations from the AGM.
Not much, just summarised my messy mental notes into point form,
not in sequence and certainly not in proper english and composition.
Hopefully, I didn't misinterpret what he said and my ears are still working fine.
So don't take my words 100%. Please correct me if you were there too.

Some points were from AGM questions asked by some shareholders and some from chatting with the CEO after the meeting, as mentioned,
they are all mixed up as I am not good with words and organising my thoughts.

1. Rig Business

Admitted that oil price dip is a big surprise. But they are looking at oil price to stablise which will be good enough for them.
Still profitable business at this level. Unable to disclose figures but profit margin may be comparable to OSV chartering.

- I suspect they just need oil price to be stabilised before any major deal can be made.

17 rigs operating in indo, needs 32 rigs.
Most old rigs in the market are due for replacement.
New rigs are over 90% utilised compared to old rigs.
Day Rate is now abt 150K, might drop to 140K in current market.
Rate in Vietnam is higher at 170K. Potential market for mpm to look into.
Business enquiries actually came knocking on mpm's door from vietnam.
Most new rig orders from China, which Vietnam might have an issue with over the sea dispute, but safe to say mpm rig is from Singapore.
Could bundle OSVs and rig as a package.

- Potential contracts for the few upcoming OSVs?
- I think the Surprise may possibly come from a vietnam contract instead of the highly anticipated indo market, of course, just another one of my own imaginations.

Rig is not for flipping, aiming to become drilling contractor.
Confident in building up a team from scratch for rig business given his experience in building up the OSV business.
Rig options : No intention to exercise at this tough time.
No collaboration from nam cheong for rig as they are not experience in rig.
Rig construction is ahead of time , is asking PPL to hold back.

Asked what if cannot find contract for the rig? Ans: "Got back up plans in mind".

2. Tug and barge Business

Not getting worse, still bad but has stablised.
Mentioned new indo President Jokowi spending plan, hope to lift business for T&B.
If T&B up, might divest away but made a point that tug and barge is where they started from.

3. Buffet

Is very simple, just yam cakes, banana cakes and sotong balls. Coffee.
Might disappoint those who are only there for the food.

4. CEO

Sean Lee is pleasantly friendly, polite, young and energetic.
Quick to give answers to all my questions during the chat.

5. Drama

One disgruntled investor questioned management for poor share price performance.
Some drama is okay for a boring AGM.

6. Dividend policy

Not paying div for now, better to hold cash for better use rather than closing the umbrella now.
Will be happy to be first to welcome payout when times are good as they (family) are also shareholders.

7. Gross Margin

Reported gross margin low compared to previous year is because more proportion of revenue coming from shipbuilding & repair with lower margin.
Is cautiously optimistic on the future of the business.

AK71 said...

Hi ozxinvest,

I am very grateful to you for taking the time and effort to share your thoughts with us. :)

Yesterday, my buy order was filled at 27.5c as I embarked on a new accumulation phase. ;)

ozxinvest said...

Welcome back on board! I have finally succeeded in getting you back, my job is done. :P

I have some at 27.5c too but bought them quite a while ago. Not as patient as you, something I want to improve more on.

What's the saying again? If you wait for the robin..hood, the spring is over liao...

AK71 said...

Hi ozxinvest,

I never did leave the boat, you know. I merely lightened my load. ;)

I have been waiting forever at 25c to increase my exposure but the lowest it went to was 27c. I guess I finally ran out of patience. ;p

Maybe, the emotional shareholder at the AGM sold his stake to me at 27.5c. :)

ozxinvest said...

I knew, just wonder how long will it take for you to load up again.

So you were there? Are you one of 2 speakers? (counting out the emotional one)

ozxinvest said...

Ok no need for you to answer that. :P

AK71 said...

Hi ozxinvest,

Unfortunately, I was not free in the morning. If the AGM was in the afternoon, I would have attended. :(

From the looks of things, 27.5c might be where we see a base forming for MPM's share price.

ozxinvest said...

Well, too bad. If not, I can get to shake hand with you too, besides Sean Lee.

I am not into technical analysis and would not want to challenge the lowest price, I never get it correct anyway.

I am more interested on how MPM can do with the earning numbers starting from Q12015., hopefully 3c is the basement liao.

AK71 said...

Hi ozxinvest,

Well, I would still want to get some at 25c a share if given the chance, everything else remaining equal. Hahaha.... Crossing fingers. ;p

RayNg said...

Audio recorder of

1. Angry (disappointed) investor
2. Q&A - Sean Lee answer investor queries.



AK71 said...

Hi Ray,

Thank you very much for taking the trouble to do this. ;)

ozxinvest said...

Hi Ray Ng,

So high tech.If you have posted this earlier, I no need to spend time cracking my head writing long composition.

Next time bring along a camera crew and tie the CEO to a chair for an exclusive interview. :P

ozxinvest said...

MPM has stopped announcing bbrm result release which was out on 26th Jan, a sign that the coming q1 result will be deconsolidated.

Result should be out by tonight.

Hopefully, we are not going to see the below 30c level soon, if not I might be the next emotional shareholder at the next EGM/AGM.

One more AHTS delivery is on the way, in fact, it's about one on average this year, that's a pretty amazing growth rate.

Plus, oil price could have already bottomed out and stablised at this level, as anyone on the street could tell you that they know about the oil thing and wonder why petrol price aren't dropping 50% too.

9 more months (could be earlier) to go before rig delivery, Sean Lee better hurry up and find a daddy for this baby.

AK71 said...

Hi ozxinvest,

I am crossing my fingers here but I really do think that the chances of something good happening are quite high, taking everything into consideration. ;)

OK, I am vested and I could be bias. ;p

ozxinvest said...

Correction in bold:
"One more AHTS delivery is on the way, in fact, it's about one/month on average this year, that's a pretty amazing growth rate."

Yes, I am even more bias and I think now the only thing that is not right is the share price. :P

AK71 said...

Hi ozxinvest,

Oh, I agree that there is something wrong where you think there is something wrong. ;)

Well, everything remaining equal, I would be quite happy to see share price going down to 25c. ;p

ozxinvest said...

eps 2.18c and nta 51.4 for Q12015. :)

AK71 said...

Hi ozxinvest,

OK, I hear you loud and clear.

26c then.

LOL. ;p

ozxinvest said...

AK, do you mean 28.5c?




AK71 said...

Hi ozxinvest,

Good news! Thanks for sharing. :D

Very happy that things have panned out the way we think they would. :)

Seems like my recent decision to buy at 27.5c might be quite rewarding (but I would really have liked to buy more at 25c still). LOL. ;p

Alvin! said...

hmmmm... actually close to SGD$3 mil of net income came from "Other operating income" which was attributed to FX gain from USD-SGD appreciation.

Stripping away this one-off non-recurring income, MPM's performance appears to be fairly consistent with FY14Q1 and not so fantastic... so this means the underlying operating business hasnt improved as much??

Having said that, I am vested in MPM and just my 2 cents =D

AK71 said...

Hi Alvin,

I feel that Mr. Market is expecting Marco Polo Marine to do much worse with its share price at almost a 50% discount to NAV. With that rig coming in 4Q, will it do much worse, I really don't know. -.-"

The balance sheet is stretched but I have confidence in the management. It is a calculated risk to be invested in Marco Polo Marine now, for sure, but I feel that it could turn out to be quite rewarding. Just don't bite off more than we can chew. ;)

ozxinvest said...

Hi AK,

Do you have any ideas which rig partner would MPM be "actively lookout" for? Would it be one of the listed companies in SG?

AK71 said...

Hi ozxinvest,

I feel like a fish out of water with this question. I really don't know. Your guess is as good as mine, really. ;)

ozxinvest said...

My guess is they might persue companies that have the experties but does not have any presence in the indonesian or SEA markets. Too lazy to do the search so asking you for quick reference....:P

By the way, it's already march and they have not announce any drawdown on the MTN for the 10% payment due on 11th February for the rig. Does that mean they are able to generate enough cash flow without taking on more debts for the 10% payment? Probably have to look at Q2 report on borrowings. I expect Q2's earnings to tilt towards the upside with improved margin and more assets put to work with the renewed and new contracts.

AK71 said...

Hi ozxinvest,

It would be a pleasant surprise if they were able to fund the 10% progressive payment internally. ;p

Just like you, I expect earnings to improve gradually. It only stands to reason.

However, with another drawdown on the MTN, I also expect the debt load to increase and interest expense should be correspondingly higher.

Let's wait for the next report. Crossing fingers. ;)

ozxinvest said...

Hi AK,

I have checked with MPM and got a reply regarding the 2nd payment of the rig. Sounds like the management has done a pretty prudent job again with the deferred payment and sourcing for a cheaper loan.

"Thanks for the email.

For corporate and asset financing, we always look for the most efficient manner of doing so and on a group perspective. As discussed and agreed with our partner shipyard, the 2nd payment is deferred to end June 2015, predicated mainly on a very reasonable and lower cost of financing.

With respect to take-out financial come end November 2015, it depends on the circumstances pertaining at that material time."

I have also roughly read through the AR of BBRM, there seems to be signs of optimism from the chairman message for the business outlook in 2015.

"Outlook for Next Year
In 2015, the role of sea transportation services in
commodity trade and energy sources movement
will be greater and thus become more important.
This is in line with the vision and strategic direction
from the new government to sustain the 5-year
economic development, which relies on the success
of the government to build a national maritime line.
Further, the new government will strive to reach
the targeted oil lifting in 2015, which continues
to require investment in the area of exploration
and production, including OSV for activities in
Indonesian deep waters.
The Board of Commisioners have discussed and
reviewed the budget and work plan (“2015 Plan”)
presented by the Directors for next year. The plan
in our view sheds a light for a better performance
in 2015.
The plan to improve the Company’s financial
performance is supported by the additional paidin
capital, fostering the management team, as
well as the strategic alliance with Nam Cheong
Limited Group, the leading shipbuilder in Malaysia.
The additional paid in capital will add value to the
development of OSV segment, which we see as
having better growth prospect in medium term. On
the other hand, the management is also committed
to strengthening the sales strategy and sales team
of the tugs and barges segment."

BBRM will take delivery of 1x8000 AHTS from MPM this coming May 2015.

"on September 30, 2014, the Company and
Marco Polo Shipyard Pte Ltd has entered into a purchase
1 unit AHTS vessels of 8000 HP with hull number H-142
with a contract value of USD21,500,000. Plan for the
delivery of this vessel on May 31, 2015, On this purchase,
the Company has made an advance payment of

In addition, 8 more vessels from MPM and Nam Cheong will join it's fleet from Mar 2015 till Mar 2016.

AK71 said...

Hi ozxinvest,

You make me want to unlock my war chest now. Perhaps, you have been buying more? ;)

Thank you so much for sharing this with all of us here. Very good information on the deferred 2nd payment to end June 2015. Sean Lee has impressed me once again. :)

I still have full confidence in their OSV business. However, I am also still apprehensive about their tugs and barges business.

"... committed to strengthening the sales strategy and sales team of the tugs and barges segment..."

Well, they better be committed although I still think they should downsize that business segment and, maybe, eventually get rid of it.

The Lee family, with more than a 60% stake, have the strongest motivation to see Marco Polo Marine do well. :)

ozxinvest said...

Hi AK,

Really? Am I the first reader to do that? It would be an achievement for me! Better than winning the stock market if can unock AK's warchest. :P

Ah you notice that too? At least one guy is quietly accumulating at 28c and 28.5c, I thought it was you, now I know it's not, or maybe it's my imagination again.

As for the T&B, distressed price can only comes by during distressed time, not true? Hopefully, it's coming out of the trough soon with the new government committed to boost the marine and oil industry.

AK71 said...

Hi ozxinvest,

So far, no trade in MPM's stock today. I have a feeling that we have reached a stalemate between buyers and sellers for a while now.

27.5c seems like the lower end of a tight range. That was also the price at which I added to my reduced long position. Should I buy more at higher prices?

Frankly, I feel that buying at a couple of bids higher is not a big deal if we feel that the business is going to do much better in the next year or two.

Right now, the tugs and barges business segment is really the one that is tugging at me and holding me back from barging ahead. LOL. ;p

ozxinvest said...

Hi AK,

Am sure that if we throw a few shares out in between, the fish will jump out to bite.

AK71 said...

Hi ozxinvest,

You throw some out at 28c and I bite, OK? ROFL! ;p

ozxinvest said...

Hi AK,

Bu yao hai wo! (copy your famous words)

Just help us barge ahead and tug away the obstacle at 29c and all the way up! Go go AK! :P

AK71 said...

Hi ozxinvest,

Aiyoh, you are so punny... er... I mean, funny. ;p

ozxinvest said...

Kuala Lumpur: Malaysian offshore shipbuilder Nam Cheong has announced that it has sold two vessels worth around $58m.

Singapore’s Marco Polo Marine has ordered a 200-man accommodation work vessel scheduled for delivery in 2015. In August 2014, Nam Cheong and Marco Polo Marine formed a jv and purchased the same spec vessel to be constructed by Nam Cheong.

The other order announced was a 12,000 bhp AHTS vessel sold to Topaz Energy and Marine in Dubai, with delivery scheduled in 2016.

Leong Seng Keat, Nam Cheong ceo, commented, “We are delighted to kick-off 2015 with the securing of two new contracts.”

Nam Cheong’s order book now stands at around RM1.7bn ($457.5m), however the company appears to be struggling to match the pace of business last year where seven vessels were sold in the first three months of the year.


AK71 said...

Hi ozxinvest,

Thanks for the update. Chugging along nicely. ;)

Some slowing down is to be expected. Slow growth during more trying times is better than no growth. :)

ozxinvest said...

Hi AK,

This AWV should be the one that is expected to start in April 2015 on similar terms to the maiden contract secured in 2014.

According to the Q1 report, I estimate the quarterly PBT from the 1st AWV to be about 0.5mil as there is an increase of 147% shared profit from JV specifically from the maiden AWV, so if we annualised it, it would be around 2mil per AWV.

With the second one put into work, if PBT is being recognised in Q3, subsequent quarters from Q3 for the 2 AWVs would bring in a total profit before tax of 1mil per quarter and 4mil per year, if my numbers are correct.

I would like MPM to bring in more AWVs from Nam Cheong!

AK71 said...

Hi ozxinvest,

My keys! My keys! Where are my keys to my war chest? I must find them! ;p

I am already in the buy queue but I don't think my order is going to be filled. -.-"

Thanks so much for sharing your take on this development. :)

ozxinvest said...

Indonesia offshore E&P staying robust. More business for indo-flagged OSV.


"Statoil was today awarded new exploration acreage through the Aru Trough I licence offshore Indonesia.

The licence covers an area of approximately 8,300 sq km, adjacent to Statoil’s existing exploration acreage in the Aru and West Papua IV licences. Statoil will operate the licence with a 100% working interest.

“This is a low-cost access into a frontier area with considerable potential where Statoil is already present. This position strengthens the optionality in Statoil’s long-term portfolio and secures potential upsides from our existing exploration acreage,” said Erling Vågnes, Statoil’s senior vice president for exploration in the eastern hemisphere.
Statoil will initially collect seismic data during the first three years of the exploration period. The information obtained from the seismic survey will form the decision basis for Statoil’s next steps in the licence."

AK71 said...

Hi ozxinvest,

Coincidentally, I just put in an overnight buy order for Marco Polo Marine last night. LOL. ;p

Thanks for the update. :)

ozxinvest said...


Unfortunately, I can see that some are unable to hold on and sold at 27c- 27.5c as some other listed O&G peers are seeing more blood. But good for you.

Alvin! said...

Hi ozxinvest,

Thanks alot for the update.
I dunno much about the O&G sector, so just wanted to check with you, are you aware of vessel demand during the seismic phase? From what I understand, MPM's vessels will not be required during this initial 3-year phase

AK71 said...

Hi ozxinvest,

Well, I would still like to pay 50c for a dollar. So, 26c? ;)

ozxinvest said...

Hi Alvin!,

Thank you for your question, honestly, I dunno much about O&G sector either. I am certain that whatever information I can find, you are equally capable of finding it.

If you are interested in OSV, you might have read this article "INTRODUCTION TO OFFSHORE SUPPORT VESSELS" (Link: https://www.marinemoneyoffshore.com/node/4011). I find it simple and useful to have an overall understanding on the offshore E&P.

Particularly on the Exploration phase:

"Exploration phase
Exploration activities involve the search for rock formations with hydrocarbon deposits. Seismic surveys are typically utilised in this phase to assess the potential of oil and gas fields (fields), and reduce exploration risks. Fields with promising geological structure will be identified for drilling. Depending on water depths, different rigs will be employed to drill and test the wells. Typical OSVs used in the exploration phase are seismic vessels, Anchor Handling Tug Supply (AHTS) / Anchor Handling Tug (AHT), Platform Supply Vessels (PSVs), and barges. The PSVs typically supply the rigs with drilling mud, drilling risers, water, and other liquids, whereas the AHTS can also set the anchors for rigs and barges when they need repositioning."

If you look at the table, Jackup, AHTS,AHT,crew boat, SSV, barge etc are being deployed in the Exploration phase (1st to 3rd years), I think MPM have (will have) most of them. And I think, logically, "3 years" doesn't really mean after 3 years then they will start drilling or go into the development phase, no?

AHTS are used in all 4 phases of the E&P cycle. MPM is doubling it's fleet by this year.

If you read further, there is an interesting description of a down cycle in 2009, well I think when oil price recovers, which it definitely will, things will be more rosy again eventually.

The point is, there are still new E&P activities in the cabotage protected indonesia water, meaning opportunities for companies like MPM which I certainly got a lot of ( confirmation) bias in it since I am vested. Really need alternative views since AK is also very bias at this point of time. :P

I don't know if MPM will benefit from statoil new licence or not, but who knows? "Scully" the Jack Up..hmmm Possible right, cabotage law for Jackup rig will take effect from 2016 (forgotten?). If yes, bingo! Then I will say "Hey AK,thanks!" If no, too bad " Hey AK, why like tat?"

I am just a tikam investor hoping to spot on too. :P

BTW, if you have questions in offshore E&P activities and MPM opportunities in this case, probably asking MPM is more direct, they are the experts, please share your findings with us! :P

ozxinvest said...

Hi AK,

MY lowest price paid was 27.5c, so probably I will wait for 25c if 27c shall break.:P

8 more months to rig delivery, analyst says within 6 to 9 months might get contract. Let's hope so but analyst also tikam tikam one hor?

AK71 said...

Hi ozxinvest,

Alamak! 25c? OK, then, I shall wait with you. LOL. ;p

It is still anyone's guess how things are going to turn out with the rig although I am quite confident that the management will pull through like they always did in the past. :)

ozxinvest said...

Hi AK,


I think we really need some opposition parties on this.

Alvin! said...


Sure, great to act as the devil's advocate here ;)

Anyway, I was really puzzled about MPM's ownership stake in BBR, especially because the two companies are closely held by insiders (corporate governance issues)so i did ask MPM about it

Shall share my observations and Chong Pin's response below.



I noticed some discrepancies in MPM's reported ownership stake in BBR. Hope to get some clarifications.

In your FY14 Annual Report pg 4, the ownership interests is as follows (image reproduced in link https://www.dropbox.com/s/teml0bdr2421w76/MPM.png?dl=0)

Subsequent to the investment in BBR by Nam Cheong, the equity interest in BBR was reduced to 34.8% (as mentioned recently in your unaudited FY15 Q1 financial statements, 11 Feb 2015)

However, I noticed that BBR's annual report listed MP Shipping Pte Ltd as having only 47.1% equity interest in PT Marco Polo Indonesia (as compared to 99%).

If this is true, MPM would only have an effective equity interest of c.16.4% in BBR and not 34.8% in BBR as mentioned in your FY15 Q1 financial statements.
Hope to get your clarifications on this material and significant difference.

Best regards,
Alvin Goh

AhJohn said...

Hi AK, may I know what O&G companies in your watching list?
Just went through something about MTQ, consistent dividend, ability to turn loss making business around, balance sheet isn't too bad, but suffer as oil price drop.

AK71 said...

Hi AhJohn,

I rather not reveal anything like this although I have shared in my blog certain stocks which I have long positions in. ;p

ozxinvest said...

Hi AK,

I think these are some possibilities of how Marco Polo Jackup TBN 1 maiden contract may look like if it clinches a short term contract:

a)In SEA,

In January 2015, Atwoods nets short-term rig contract in Southeast Asia ( not sure which country)

Atwood Oceanics has announced today that one of its subsidiaries has entered into an agreement to provide drilling services with the jack-up rig Atwood Mako.

The Atwood Mako is Pacific class 400 ultra-premium jack-up unit rated to work in up to 400 feet of water.

The contract will be performed in Southeast Asia at an operating day rate of USD 155,000 for a minimum term of 70 days, and it includes a priced option for an additional term.

The Atwood Mako is presently working offshore Malaysia and is expected to mobilise to its new location in late March, in direct continuation of its current programme.

Source: http://www.oilandgastechnology.net/upstream-news/atwoods-nets-short-term-rig-contract-southeast-asia

b) In Indonesia,

In March 2015, KS Energy lands Indonesia contract for it's jackup rig KS Java Star (Built in 1981):

Singapore: Singapore offshore firm KS Energy has announced that its Indonesian subsidiary, PT Atlantic Oilfield Services together with its joint operation partner Pertamina Drilling Services Indonesia, has been awarded a short term contract for the KS Java Star jack-up rig.

The contract is valued at around $7.2m according to the company, and work is expected to begin this month.

KS Java Star was re-fitted at Keppel FELS shipyard in October 2012, and deployed on a two year contract to Indonesia’s West Madura oilfield, located off the coast of Java.

KS Energy, via 80% owned subsidiary KS Drilling, operates six offshore rigs and twelve onshore rigs.

Source: http://splash247.com/ks-energy-lands-indonesia-contract-for-jackup-rig/

c) In Vietnam,

In Feb 2014, KS Java Star 2 ( built in 2014) from KS Drilling clinched a one year contract for about US$58 million (so day rate is about USD159000):

The Board of Directors of KS Energy Limited (“KS Energy” or the “Company”) wishes to
announce that a wholly-owned subsidiary of KS Drilling Pte. Ltd. (“KS Drilling”), has secured a
contract for the provision of a new 300ft drilling rig in Vietnam for Vietsovpetro.
The contract is for a period of one year with an option to extend for an additional one year and is
due to commence in the second quarter of the financial year ending 31 December 2014 (“FY2014”).
The total value of the contract, excluding the potential extension, is approximately US$58 million.

SOurce: http://infopub.sgx.com/FileOpen/KSE-Draft.Announcement.Java.Star.2.Contract.ashx?App=Announcement&FileID=282099

AK71 said...

Hi ozxinvest,

I was keeping an eye on KS Energy and their Java Stars. I didn't know about Atwood Mako.

Atwood Mako's contract is interesting because it is a Pacific Class 400 similar to the rig which MPM ordered.

With cabotage kicking in by end of the year, I suspect that MPM should be able to command a higher day rate than what KS Energy secured for their Java Stars, both of which have lower specs than MPM's rig.

I am "cautiously optimistic". I think this is the right phrase to use in an investment with a speculative element that we are rather confident of. ;p

ozxinvest said...

Hi AK,

Atwood Oceanics got 3 Pacific Class 400 Jackups out of it's 5 Jackup fleet.

The other 2 are Atwood Orca, which is priced at a day rate of approximately $165,000 in May 2014 for 9 months and Atwood Manta, which is priced at a day rate of $159,500 in Dec 2013 for 2 years, both operating in Thailand, SEA.

AK71 said...

Hi ozxinvest,

This is very valuable intelligence. Thanks for sharing. :)

If MPM should be successful in securing a contract for its rig in Indonesia (which I think there is a high chance it would) by end of the year, it should enjoy a higher rate than these. ;)

ozxinvest said...

Hi AK,

Some follow up with MPM,

1. In regard to my question on the deferred payment, there is no plan to delay delivery for the rig ("premature to do so").

2. Still in various stages of discussions with a few operators "active in the South East Asian space".

3. Just taken delivery of another vessel in April and looking to put it to contract.

4. Q2 results should be out early May, earlier this time.

AK71 said...

Hi ozxinvest,

Thanks for the heads up. I added to my long position again recently at 27.5c a share. ;)

ozxinvest said...

Hi AK,

Alamak, I am still waiting for 25c.

Anyway, market seems to be quite bearish on MPM based on buyer's interest, including a Fool's take on MPM based simply on ROE and Total Debt to Equity ratio, here:


Well, I shall continue to wait for... 25.5c until I cannot wait. :P

AK71 said...

Hi ozxinvest,

I think both of us know that there is a speculative streak in Marco Polo Marine right now. We are in this with our eyes open. ;)

Anyway, I am also waiting for 25c but it doesn't seem to be happening. Just a bit more at 27.5c. Not too much. ;p

ozxinvest said...

Hi AK,

Yes, that is why I'm closely monitoring and keeping in touch with the company once in a while, hopefully to sense the slightest change of wind.

Anyway on a side note, Vivian Hsu is pregnant, let's hope that will bring on lots of luck to Sean Lee! :)

AK71 said...

Hi ozxinvest,

What is one of the favourite phrases used by the analysts interviewed on TV? Cautiously optimistic. ;p

ozxinvest said...

eps 2.98c and nav 49.4 for FY2014.
eps 2.18c and nav 51.4 for Q12015.
eps 3.31c and nav 52.9 for H12015.

6 more months to rig delivery and "the construction of the premium jack-up rig is progressing as planned".

Price of 27c currently trading at 51% discount to nav.

ozxinvest said...

Should be 49% discount to nav, 0.51 P/B.

AK71 said...

Hi ozxinvest,

I have been buying at 27c and 27.5c. I am now waiting for 26c for that 50c for $1 bargain. ;p

ozxinvest said...

Hi AK,

I am looking forward to a better Q3 result and onwards as I think higher margin contributions will come from chartering business with the 2 AWVs, and MP PROSPECT which I think they have taken delivery last month, and 3 more ( MP PRESTIGE by 31 May, MP PERKASA by 28 Aug and MP PRIDE maybe by year end) to come this year. Two more 12000HP AHTS by MAR 2016, according to BBR report. MP PROSPECT and MP PRIDE should belong to MPM and the rest sold to BBR if I am not wrong.

Another 4 vessels will be contributed by NC to BBR, to be deliverd in H2 and 1 vessel should be delivered by 31 MAR to BBR.

This should offset the subdued results from BBR and further finance cost for the rig if they are being chartered out accordingly.

If next 2 quarters earnings improved or stablised at 1 to 1.5c per quarter, we could hope to see a 5 to 6c EPS this year and NAV probably increased to ard 56c this year or more if the rig is delivered on time by Q12016.

Hopefully, we can see some positive FCF after most, if not all the assets are put into work by next year.

AK71 said...

Hi ozxinvest,

Thanks for this. You have saved all of us plenty of legwork here. :)

This is an affirmation that my initial investment thesis is valid. If you remember, when we first invested in Marco Polo Marine, it was with a view that their OSV business would be the growth driver. It has panned out as expected.

What we did not expect was the decision to buy a jack up rig which seemed overly ambitious but, of course, we keep saying that if it should be successfully executed, it would really be a wonderful thing. We will know in the next few months.

I have been increasing my exposure slowly at 27c or so, believing that Marco Polo Marine is undervalued but I try not to be too greedy as the jack up rig has created ripples in my initial investment thesis. ;)

Wei Xiong How said...

Hi AK, it has reached 50cents for 1buck sale already. Getting your keys to warchest soon? :)

AK71 said...

Hi Wei Xiong,

I will be doing more nibbling. I am not sure about pushing out my war chest for this. ;p

ozxinvest said...

Is There Light At The End Of The Tunnel For The Asia Pacific Rig Market? By Ian Craven

....Just to make matters worse for the international contractor “regionalization” has sprouted horns. Vietnam will always contract PV Drilling’s four (4) rigs first before any non-Vietnamese rigs get a look in. Indonesia, through its local content requirements, provides Indonesian drillers such as Apexindo, KS Drilling and Marco Polo an inherent advantage though there is no push to use domestic rigs. Worse of all is Malaysia which has in the recent past employed as many as nineteen (19) jackups but now with domestic contractors UMW, Perisai and Coastal providing or soon to provide twelve (12) premium jackups between them and Petronas dictating that preference should be given to Malaysian contractors, a major market has been removed for the international contractor.....

Full article at http://oilpro.com/post/13515/there-light-end-tunnel-asia-pacific-rig-market

Indonesia Plans to Offer More Oil, Gas Blocks for Bidding This Year

Indonesia's Ministry of Energy and Mineral Resources (MEMR) will offer more oil and gas blocks in a new bidding round this year as the country seeks to increase production despite weaker investment interest due to a decline in oil prices, according to a report published in a local daily Saturday. “We are in the preparation stage and will start the new bidding round soon,” MEMR’s Director General for Oil and Gas IGN Wiratmaja Puja said, as quoted by The Jakarta Post. Potential bidders have a total of 10 conventional oil and gas blocks and two unconventional shale blocks, located across Indonesia, for selection.

Full article at rigzone.com:
IndonesiaPlansto fferMoreOilGasBlocksforBiddingThisYear

Opportunities Prevail in the SEA Offshore Oil and Gas Services Market amidst Dwindling Oil Prices, says Frost & Sullivan
Malaysia and Indonesia set to become the most lucrative markets

"Despite the oil-price situation, the Southeast Asia offshore O&G services market managed to generate revenues of US$25 billion in 2014," noted Frost & Sullivan Energy & Environmental Consultant Daniel Wicaksana.

"A lot of different players ranging from large multinational companies to medium- to small-sized regional and local companies have been driving total market revenues," he added.

As the shallow water oil fields in Asia start to mature, O&G companies are facing the pressure of declining production. As a result, O&G companies based in countries such as Malaysia and Indonesia are developing deepwater fields. With Malaysia and Indonesia witnessing the highest exploration activity in Southeast Asia, these countries will become the largest markets for O&G offshore support services and pipeline services.

Full article at http://www.prnewswire.com/news-releases/opportunities-prevail-in-the-sea-offshore-oil-and-gas-services-market-amidst-dwindling-oil-prices-says-frost--sullivan-300082429.html

AK71 said...

Hi ozxinvest,

Thanks for providing all the reading material. ;)

I do feel that Mr. Market might be feeling overly pessimistic about Marco Polo Marine's prospects. However, we want to balance that by not being overly optimistic too. ;p

ozxinvest said...

Hi AK,

Yes times are bad for the O&G sector, related stock prices making new lows will make market even more pessimistic, it's a vicious cycle. I tried not to be over pessimistic, likewise, I try not to be over optimistic when stock prices trade at over 20xPE or 2xPB.

I have shared my concerns with MPM a few days ago and try to post the reply yesterday but it seems like the comment didn't get through. Here's a shorter version:

1. May I know is the latest OSV delivered ( I suppose MP Prospect) able to find a charterer as it has been about 2 months since delivery and there isn't any news?

It is common knowledge that exploration budget has been cut by oil majors.

This would have a downward effect on demand and hence as mentioned in Note 10 of our half year results, there are signs of weak market environment given the muted offshore oil and gas activities.

With a full team of technical, crewing and marketing team, we are currently actively engaging the market including the marketing of MP Prospect.

I am kind of a bit concern as there are a few more vessel deliveries throughout the coming months and waht if all are not able to find a charterer including those sold to BBR by MPM and Nam Cheong?

BBR is an associate company of MPM with about 35% ownership (as well as Nam Cheong at about 30%). It is a valuable platform for us to penetrate and ply in Cabotage-protected Indonesia market.

We are take into consideration the market condition and to take steps to ensure corporate health including being flexible in taking delivery to the extent that that it is not unduly detrimental to other Group entities, i.e. the best interest on a Group basis.

2. As of last AGM, regarding the Jack Up rig, the CEO mentioned that he is waiting for the oil price to stablise. May I know at what price would the company consider stable and is it a condition for clinching the rig contract?

It is a bit more complicated. The issue is at what price would oil majors start to take more comfort and re-commence on exploration and drilling programme.
What we can say is that it is not as gloomy as at the earlier part of the year when we were looking at US$40+ and spiraling down but now we are at US$60+, and we are seeing old rigs being stacked or scrapped.

The related aspect of (higher) oil prices is that of stability (or reduced volatility). We can’t speak for oil majors but I think more time is probably needed to establish that condition.

Also, there are other dynamics. In this part of the world, i.e. South East Asia, it is characterized by National (i.e. government-linked) Oil Companies as opposed to more mature markets where it is dominated by International Oil Companies. The NOCs may have other objectives such as oil sufficiency other than profit maximization of IOCs.

3. Does the company plans to clinch the rig contract only after delivery and after the implementation of the cabotage law?

We have been pre-marketing and looking to clinch a rig contract soonest by having discussions with potential charterers and partners.

While we do not want to limit ourselves, we still intend to stay focused to South East Asia which includes Indonesia, and perhaps Asia Pacific if we stretch it.

As such, I have lowered my expectation for Q3 as MP Prospect is still idling, however, I think MP Prestige should be delivered as planned and MP Nautical Adlin should be already plying in Malaysia Waters by now.

Is There Light At The End Of The Tunnel? Probably not yet. But that leads me thinking of the chinese proverb:
Liu An Hua Ming You Yi Chun, let's hope for the best. Any way, I have nibbled some at 26c yesterday.

AK71 said...

Hi ozxinvest,

Thanks for keeping a ear on the ground and for sharing this with us. Much appreciated. :)

Being pragmatic also means sizing our position appropriately. I am sure that is exactly what you have done too. ;)

ozxinvest said...

Hi AK,

Thank you for the kind reminder. I will make "sizing our position" my mantra. :)

I think it's good to read the competitior's commentary on Indonesian OSV outlook for 2016. I think it applies to the rig market too once cabotage law is implemented in Dec this year. Let's continue to monitor see how it goes.

PT Wintermar Offshore Marine

AK71 said...

Hi ozxinvest,

Yes, I agree with you. It was also learning from Jaya Holdings that 3 of their OSVs were evicted from Indonesian waters when Cabotage Law kicked in that told me Marco Polo Marine had a definite edge in the country. :)

I think we are allowed to be cautiously optimistic here. LOL. ;p

ozxinvest said...

Successful launching of the rig "Iron V" on 21st April 2015, such a romantic CEO. :)


AK71 said...

Hi ozxinvest,

Let's hope that Iron V will bring in some solid earnings. ;)

ozxinvest said...

Hi AK,

Not sure if you have come across this rig list, think it might be interesting to explore, particularly on the rig players in indonesia. Most are not indonesia flagged yet, according to a search in rigzone.


AK71 said...

Hi ozxinvest,

I don't know of this particular list but I do know that most rigs in Indonesian waters are now foreign flagged. This is one reason why I am cautiously optimistic about Marco Polo Marine's prospects with their soon to be delivered high specs jack up rig with the Cabotage Law expanding to cover rigs very soon. ;)

ozxinvest said...

Hi AK,

It's comforting to see MPM starting to buy back shares today, I have not seen any OSV players buying back shares in recent months.

My recent small nibble is at 23.5c.

AK71 said...

Hi ozxinvest,

Marco Polo Marine is deeply undervalued. I have a faint suspicion that the Lee family would take the company private if they had the resources to do so.

I hope the buy back means there is some good news with regards to their new rig which will be delivered in another few months from now. That is the positive catalyst that is required by Mr. Market. :)

ozxinvest said...

Hi AK,

By buying back shares in the market, it eliminates the possibility of a cash call as suggested by KGI Fraser last month.

"Offshore support vessels (OSVs) owners Otto Marine, Swiber and Marco Polo Marine: These smaller offshore and marine (O&M) firms with high debt levels could make more cash calls as their funds dry up amid a crude oil slump and persistent oversupply of OSVs, said brokerage KGI Fraser in a report on Monday." (http://www.businesstimes.com.sg/stocks/stocks-to-watch-avjennings-%C2%A0lmirt-%C2%A0mapletree-greater-china-osv-owners)

I hope MPM could take away another few millions shares from the market again this year, cheaply.

AK71 said...

Hi ozxinvest,

How best to use the money we have is a question that everyone, companies or individuals, must consider carefully. Using money to buy back shares means that Marco Polo Marine has less money to pay down debt. So, there could still be a rights issue later on. Hard to say for sure.

Of course, if the management believes that buying back its own shares will create more value than paying down debt, it would make sense to do a buy back.

Looking at the EPS in 1H FY2015, it seems that Marco Polo Marine's stock is now trading at a PE ratio of less than 4x. It is dreadfully undervalued by this measure. It is also trading at a huge discount to its NAV of 53c a share.

I believe that Marco Polo Marine is not out of the woods as long as it is unable to find a customer for the rig that is soon to be delivered. Their finance cost would easily increase by 4 to 5 times once they take delivery of the rig.

If the rig does not generate income, it might not sink Marco Polo Marine into a loss making position but it would greatly reduce the profitability of the company by about 70%. This is my estimate. The PE ratio would become 11x or so then.

So, everything hangs on whether Marco Polo Marine is able to achieve a positive outcome for the rig soon. Of course, one could hope that the recent share buy back is a sign that there are positive developments which we don't know of yet. ;)

ozxinvest said...

Hi AK,

Appreciate and thank you for your perspectives. I would be very disappointed if they do a rights issue after buying back shares, it's like reducing the outstanding shares now and then flooding the market with more discounted shares, this is not the kind of company I want to put my money with. It would take away all the plus points I have for them.

Indeed, there is a chance that MPM might not get the contract on time, KS Energy has lost a rig contract in indonesia recently but I am hoping that MPM could get a deal with NOCs like Pertamina as indonesia NOC has maintain or slightly increase it's production target ( whether they can meet the target is another thing), whereas IOCs are cutting back budgets. MPM needs to have the finances to weather such situation and I do hope the CEO do have "backup plans" like he mentioned in last AGM.

The coming quarter won't be too fantastic, as far as I know, the two new vessels are still idling, two more will be added by year end, maybe they could do a 1 rig plus 4 support OSVs package in one deal?

AK71 said...

Hi ozxinvest,

I also hope that the CEO has a card or two up his sleeves and that he is not merely bluffing. Alamak. Like playing poker like that. ;p

I am hopeful that the timing of the rig's delivery at the end of the year is a strategy that will pay off since the Indonesian Cabotage Laws will expand to cover rigs in the new year.

If the rig situation pans out nicely, Marco Polo Marine will do very well. :)


Hi AK,

There has been sustained buying activity from the folks at Marco Polo Marine @ $0.24 across a number of days.


As to why they are doing this, it's anyone's guess outside of their boardroom.

Being vested, I hope it's because they have made real progress in terms of the rig lease.

AK71 said...

Hi Solidcore,

There is definitely a chance that there could be some positive development. :)

Marco Polo Marine is dreadfully undervalued and I added some to my long position recently after concluding that they would still be profitable even if they take a bit longer to charter out the rig. :)

ozxinvest said...

Hi AK,

BBRM released it's Q2 results, a loss of around USD1.56mil vs Q1 loss of roughly USD2.54mil.

According to the Q2 report and comparing with their last report, there seem to be some changes to the deliveries of the vessels, one obvious change is the renewed contract in June, entered on sept 30 2014, H-142 seems to be replaced by H-147 and to be delivered in Aug 2016 instead of May 2015.

MPM did not announced any second payment for the rig again, if they can't get a contract, I have a feeling that they might just delay the rig delivery.

With a narrower loss from BBRM and a possible contribution from the second AWB, I expect the share result form jointly controlled companies to be positive for this quarter. With a stronger dollar, and assuming Q3 revenue remains stable, eps should hover around 1c to 1.5c which means 9 months eps of 4.3 to 4.8c.

4 more months to Iron V delivery and expecting a delay.

AK71 said...

Hi ozxinvest,

Thanks for the update. :)

I wonder if the tugs and barges would do much better in 2016. I still think that the company would do better without them although I do understand that they are a legacy business and many people are involved.

As for the rig, the delivery was originally scheduled for end of 2015 but SMM was ahead of schedule. I think it is the right thing to do to ask for the rig to be delivered as scheduled but not earlier. It is within MPM's rights to ask for this but I am not sure that they could ask for delivery of the rig to go into the new year.

I still think that MPM should be able to secure a charter for the rig with the Cabotage Law kicking in just a few months from now. Crossing fingers. :)

ozxinvest said...

Hi AK,

The export ban on coal has dragged down BBRM T&B business, however in the future,I am seeing some light in the business as more coal powered plants are being built in indonesia, they ought to need some form of transportation of coal around the archipelago , however, I am not sure if BBRM will benefit from this, if yes, MPM could grab the opportunity to divest the business. A lift on the ban is probably better for BBRM though.

Yes MPM and Nam Cheong have the flexibility to delay or cancel the deliveries of their vessels to BBRM, but there could be a penalty if MPM delay it's rig delivery from PPL, but I think MPM seems to be in good hand negotiating terms with PPL from the way it's delaying the payment plan.

I can't find anything on the progress of the cabotage law that is coming soon for the jack up rig, seems like there is not much urgency from the foreign companies and the government to prepare for the implementation of the local content even as the due date is approaching. Do you have anything on this? So far only Apex and KS drilling are in the local rig business, I wonder if MPM is the only one that is venturing into this and what will the other foreign drilling contractors like Japan Drilling, Vantage Drilling, Transocean etc. do when the time is up?

AK71 said...

Hi ozxinvest,

It does look like MPM's fortunes depend a lot on the direction the Indonesian government takes. If the ban on coal exports is an effort to achieve self sufficiency in energy needs, then, it is unlikely to be lifted. Tugs and barges would then continue to be a drag on the business.

As for the Cabotage Law expanding to include jack up rigs in the new year, I am sure it would happen. When it happens, we would see eviction of non-Indonesian rigs from Indonesia's waters. This was what happened with 3 of Jaya's AHTS when the Cabotage Law expanded to include OSVs then. It should be disruptive this time too.

This is why I am optimistic that MPM would be able to secure a charter for their rig if not this year, then, early in the new year. :)

ozxinvest said...

Hi AK,

13% drop to 20c today is really too desperate, could be a margin call and being force sold.
It's very painful and even more so if it rebounded from where you have been sold.

"Never ever use a margin account for trading!" I have told myself that more than 10 years ago.

Guess more and more people are giving up already, fearing that MPM could become another super penny stock. Yet I see people fearlessly venturing into suspicious and loss making super penny stocks, what irony...

The way people think oil price will drop, probably we will get free oil soon.

AK71 said...

Hi ozxinvest,

Hahaha.. Free oil! I like free. ;p

I would love to buy more Marco Polo Marine's stock at 20c a share. I am not sure if it would happen again but I am waiting. :)

Nightmare_Angel said...

$0.20 is a steal and I missed the ship! Lotsa of good bargains around just need to pick the ones which u are most comfortable with. :)

ozxinvest said...

Hi AK,

Just to share this Apexindo video in Mar 2015 for those who are still sticking with MPM.


"Maybe you should know about those who drill offshore right now, 12 or 13 offshore rigs are still in operation...only 2 of them are operated by local companies"- President Commissioner PT Apexindo Pratama Duta, Tbk Agustinus Irawan.

So I guess it means come Dec 2015, which is just a few months away, 10 foreign flagged rigs will be evicted from Indonesian waters, which should provide a vaccuum for the local flagged rig market and should be very disruptive to the oil production in indonesia.

I am thinking MPM should be working very hard right now to negotiate a win win terms with the oil majors or some foreign drilling companies.

AK71 said...

Hi Nightmare Angel,

Yes, 20c is very cheap! I hope I, ok, we can get cheaper. ;p

AK71 said...

Hi ozxinvest,

Thanks for putting a number to my suspicion. Appreciate it. :)

It could be a similar situation to the time when OSVs that were not flagged in Indonesia were evicted from Indonesian waters which created a shortage and higher charter rates for those OSVs which are Indonesian flagged. ;)

ozxinvest said...

The Q3 PAT is only 344k compared to last year's 1262K due mainly to the weaker USD at the time of the reporting period at the end of June which caused a 106% increase in other operating expense, and a lack of foreign currency gain as compared to last 2 quarters. But USD has appreciated much more after that to exchange rate of 1.4 from 1.34, I think probably will prop up the earnings again at Q4 as revenue is received in USD, if everything else remains equal.

I don't see any hope of the stock price rebounding in the near term, as the broader market in offshore service continue to be weak unless there is a positive outcome from the rig venture. But I will be looking at 20c for another nibble.

AK71 said...

Hi ozxinvest,

Thanks for the update. Appreciate it very much. :)

In the near term, I would not be surprised to see more weakness in the stock price which would give me an opportunity to buy more on the cheap. I was just chatting with a friend on FB last night that I would like to see 20c a share before buying more, actually. Et tu? ;)

ozxinvest said...

Hi AK,

20c seems like a good support, unless MPM falls into the red in Q4 and we could see further downside, but with the strong USD going into an upswing, chances could be very low.

I would very much like MPM to delay delivery of Iron V if they are unable to clinch a contract before delivery, instead of burdening themselves with more debts after taking out the financing.

But the fact that they have not indicated any delivery delay, and continue to do share buyback last month, could mean that they have not given up yet.

The Q1 commentary has changed from "commenced premarketing efforts" to Q2's "to develop expertise" to Q3's "engage in discussions with market participants", if we were to try to read and guess any progress out of the commentary.

AK71 said...

Hi ozxinvest,

I like your last paragraph. LOL. ;)

Crossing fingers and let us hope the management continues to deliver just like they have been delivering for so many years.

I believe in Sean Lee's vision although it was rather ambitious. Lady Luck dealt him a blow when the price of crude oil plunged rather suddenly which, frankly, no one saw coming.

If the management is able to deliver a good outcome in such a situation, I think it would lead me to upgrade my opinion of Sean Lee once again then. ;)

ozxinvest said...

Lee Wan Tang has been busy buying up MPM Shares at 20c level, it would be nice to catch some below that level.. :P, have you, AK?

AK71 said...

Hi ozxinvest,

Shhh... Not so loud. So, you have noticed too. ;p

ozxinvest said...

Aiyo...but probably you are right. :X
Quick, delete my comments..:P


Hi AK,

Latest news from MPM <a href=" http://marcopolo.listedcompany.com/newsroom/20151117_183401_5LY_00QVG6R35YOGZ7XO.1.pdf> TERMINATION OF RIG CONSTRUCTION CONTRACT WITH PPL SHIPYARD PTE LTD FOR THE CONSTRUCTION OF A HIGH-SPECIFICATION JACK-UP RIG </a>

Can't tell if this is a good or bad piece of news. On one hand, given the challenging and poor crude oil price climate, not having a rig on hand might be good as returns might not be ideal. Bad news is the rig seems to be a catalyst which investors have been waiting for and could adversely impact the outlook for MPM.

Only time can tell what's next on MPM's journey. Good luck to us all.

sads said...

Hi AK,

MP has announced that they are terminating the rig at the eleventh hour. Whats your view on this ?

AK71 said...

Hi Solidcore and sads,

I think it is the right thing to do if the management is not confident that the rig is a good investment in an environment where low oil prices are going to persist for some time to come. :)

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