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Someone told me I have been blogging a lot about Marco Polo Marine lately. Well, I guess it is natural since I think this is a company that is doing well and is likely to continue doing well.
My continuing research revealed that in Indonesia, foreign vessels that perform surveys, drilling, offshore construction, offshore activities, dredging work, salvage jobs and underwater activities for the oil and gas sector are exempted from the cabotage law.
The cabotage law? Indonesia enacted a cabotage law in 2005, but enforcement was delayed for years.
The Indonesian Cabotage Law requires all vessels operating in the country’s waters to register as Indonesian-flagged vessels by 7 May 2011.
Marco Polo Marine via its Indonesian subsidiary company, PT Pelayaran Nasional Bina Buana Raya ("BBR"), reflagged all its vessels earmarked for plying in Indonesian waters to comply with the law.
Apart from tugs and barges, Marco Polo Marine also owns anchor handling tug supply (AHTS) vessels. What are these? They are vessels built to handle anchors for oil rigs. So, with the exemption mentioned earlier, does it mean that Marco Polo Marine's fleet of AHTS is at a disadvantage?
Further research found that there is a requirement by the Indonesian Transportation Ministry for companies to prioritize local companies as service providers in oil and gas shipping.
Local and foreign companies are required to seek Indonesian-flagged shipping companies first in a tender. They can turn to foreign firms if they fail to get local companies within three rounds of bidding. Even then, they can only use foreign vessels through a local company!
I am of the opinion that a substantial part of Marco Polo Marine's economic moat is provided by the Indonesian Cabotage Law. This allows them to charge a premium on its charter rates which OSK Research has called the company's most promising source of high margin growth.
References from The Jakarta Globe:
1. Govt Exempts Oil, Gas Vessels From Cabotage Law.
2. IPO-Bound Shipper Buana Plans to Cash in on Cabotage.
Related post:
Marco Polo Marine: Looking into the future.
Bloggy Award
5 comments:
Hi AK,
Blogging informatively about a value play is never too much. I say, go on blogging!:)
Just wondering, did you work out a value (fair price or intrinsic value) of Marco Polo, which prompted you to confidently keep on adding when the price is down? If you do, could you please share your workings and the Fair Price with us? Thanks very much.
Hi Jojo,
Valuations could vary from person to person and is, therefore, rather subjective.
I did offer what I think is a fair value for Marco Polo Marine's stock before.
I am going to make you do some work. Click on "Marco Polo" in the tags at the end of the blog post and go back a few blog posts and you should be able to find what you are looking for. ;p
Hi AK,
I find that you did a good job in explaining the business and activity for Marco Polo. The rest will depend on Mr Market when they are going into this stock.
Thanks
Tom
Hi Tom,
Oh, definitely. There is no accounting for Mr. Market's mood swings. :)
The 5 rules for successful stock investing as listed by Pat Dorsey are:
1. Do your homework
2. Find economic moats
3. Have a margin of safety
4. Hold for the long haul
5. Know when to sell
I have done points 1 to 3. Point 4 could be the toughest, requiring patience and a copious amount of it, sometimes. Point 5 will come when it comes. :)
For anyone who is interested in the book, see: 5 rules for successful stock investing.
With respect to Indonesia's Cabotage Principle, domestic sea-borne transportation of various key specified categories of goods such as coal, granite, sand, and more commodities in general is to be undertaken by Indonesian-flagged vessels.
BBR currently owns an impressive fleet of young and efficient tugboats and barges, and offshore vessels to cater to these marine logisitics needs.
Coupled with the growth of Indonesia and other regional countries, the demand for BBR's services has increased which provided the impetus for growth that the Company has experienced over the past few years.
In June 2013, BBRM took delivery of 1 unit of Anchor Handling Tug Supply (AHTS) with 9000BHP which it acquired from a third-party builder.
This is the first 9000BHP modern ATHS with an Indonesian flag.
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