Marco Polo Marine: Looking into the future.

I think readers have heard enough from me on how I am positive on Marco Polo Marine ever since I started blogging about it after discovering persistent insider buying last year.

See:
Marco Polo Marine: Persistent insider buying.

Let us hear from some other people:

On the financial performance for Q1 FY2013, Mr Sean Lee Yun Feng, CEO:

“We are heartened by the set of results attained for Q1FY2013 amidst subdued market environment. The performance was consistent with our corporate strategies premised on four growth platforms which will continue to underpin our performance moving forward.

“On the shipyard front, our focus in securing projects with increasing sophistication is expected to continue to distinguish ourselves from competition.

“With regard to ship chartering, our deliberate shift in focus towards offshore oil and gas sector is expected to enhance contribution to both our chartering profits and margins. To this end, we have added a new OSV built by our Batam shipyard to our offshore fleet since mid-October 2012 and have had it chartered on a time charter basis.

“The recent successful listing of BBR on Indonesia Stock Exchange augments the Group’s focus to further penetrate into the Indonesian oil and gas sector. Apart from enabling BBR to reach out to a wider base of customers, the listing also makes avail more funding avenues to enhance the growth of BBR. With BBR now being our subsidiary, we will further align the offshore operations more closely as a group for better synergies.

“Last but not the least, our focus to generate profits through strategic alliances is beginning to bear fruits as well. Notably, our recently forged jointly controlled entity which engages in the bunkering logistics business has contributed to the bulk of the 57.1% increase in the share of results from jointly controlled entities”.

See: Media release.

OCBC Invesment Research, 28 Jan 13, on the results:

Marco Polo Marine (MPM) reported a 38% YoY drop in revenue to S$15.2m but saw a 3% rise in net profit to S$4.5m in 1QFY13, such that the latter formed about 20% of our full year net profit estimate, within our expectations. The fall in revenue was mainly due to slower progress in newbuild orders, resulting in lower shipbuilding revenue. This was offset by higher ship repair turnover, which grew 75.5% to S$8.6m in 1QFY13.

Ship chartering revenue fell by 5.2% to $5.5m with the mandatory docking of an offshore vessel. Overall gross profit margin, however, increased from 25% in 1QFY12 to 39% in 1QFY13 with a higher proportion of ship repair revenue (generally commands higher margins compared to ship building). Fair value estimate of S$0.56 under review.

OSK Research, 28 Jan 13, on the results:

Topline fell 38% but profits up 3%. Gross margin jumps from 25.2% to 38.6%. Most of the $9.4m fall in revenue to $15.2m was due to shipbuilding revenues falling 92% to $1.1m, while ship repairs grew 75.5% to $8.6m. The fall in shipbuilding revenue is mostly due to accounting procedures – last year, MPM could recognise 49% of shipbuilding revenues for BBR, but that vessel has been delivered and going forward due to consolidation it no longer can. Nevertheless, with a much greater share of revenue coming from high-margin businesses like ship repair and OSV-chartering, the gross margin jumped from 25.2% to 38.6%, flowing through to the bottom line for a 3% increase in net profit to $4.5m, in line with expectations as 1Q and 4Q are seasonally the weakest quarters.

Financially stable. Net gearing is low at 28.5%, and although net working capital looks negative at -$16.5m, most of it is due to the cheap short-term debt which at $35.7m forms 56% of current liabilities. MPM has no problems refinancing this due to its low gearing and the interest coverage this quarter of 13.5x.

15-20% charter rate premium in Indonesia. Our industry sources inform us that charter rates for OSVs and tugs & barges in Indonesia enjoy a large premium compared to regional rates, due to the massive shortage created by the cabotage law. With only four modern AHTS vessels of >8000bhp in the whole of Indonesia, and MPM effectively owning two, this is MPM’s most promising source of high-margin growth.

Maintain Buy with TP $0.61, MPM valuations look ready for catch-up. We continue to value MPM at 9x FY13F EPS for a TP of $0.61. For the last year, MPM has been trading below book value while it delivered a 23% jump in profits over the year. We expect MPM’s valuation to break out and catch up to the other oil & gas plays. The recent +51% performance of XMH – which similarly draws most of its revenues from Indonesia – gives us confidence that the market is beginning to revalue companies with strong earnings that ride on the growth of Indonesia.

My take?

When Marco Polo Marine's OSV chartering business in Indonesia takes off in a big way, the higher margins enjoyed now will translate into really impressive earnings. Patience will be rewarded.

Although I bought more recently at 40c and 40.5c, if Mr. Market should send share price lower again, I hope I would be brave enough to buy more.

Related post:
Marco Polo Marine: Still cheap.