Event:
Marco Polo Marine (MPM) recently said that it has submitted an application to the relevant authorities in Taiwan for the offering and listing of Taiwan Depositary Receipts (TDR). This comprises 25m new shares and 26.19m vendor shares held by certain existing investors of the company. Notably, the move should help to improve the stock’s trading liquidity and broaden the shareholder base.
Our View:
If the proposed TDR listing were approved, the new shares would amount to about 6.8% of the enlarged share capital of the company. We believe the net proceeds, estimated to be S$10m, could be used to pare down MPM’s borrowings, thereby strengthening its balance sheet (net gearing will improve to 44% from 52% as at March 2011).
Earlier this month, MPM secured a shipbuilding contract, worth about S$10m, to build five barges for a third‐party Indonesian customer. Under the agreement, the construction of the barges, each up to 310 feet in length, is scheduled for completion in FY Sep11. We understand that these vessels are to be deployed by the customer to ferry commodities within Indonesia.
To comply with Indonesia’s cabotage rule, MPM has so far relied on saleand‐ leaseback arrangements of tugboats and barges. However, this short‐term measure is being replaced by a more sustainable business structure through a recent shareholder‐sanctioned 49% equity stake in Indonesian‐incorporated entity, PT Pelayaran Nasional Bina Buana Raya (BBR). Management aims to make BBR financially self‐sustaining through a listing on a reputable regional bourse. If this eventuates, we believe it could serve as a potential re‐rating catalyst.
Action & Recommendation
We roll forward our valuation to FY Sep12 earnings, pegging it at an undemanding 8x PER, in line with MPM’s offshore and marine peers. With almost 30% upside, we maintain our BUY recommendation and target price of $0.50.
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