Initiating Coverage BUY
Current Price: S$0.405
Fair Value: S$0.48
Growing integrated marine logistics group. Marco Polo Marine Ltd (MPM) is a growing integrated marine logistics group with two main business divisions: 1) ship chartering and transhipment services and 2) shipbuilding and repair. Serving the energy sector in Indonesia and the region, its operations are mainly focused on the transportation of Indonesian coal for domestic use and exports. Unlike a pure ship charterer, MPM has ship building capabilities to support the needs of its chartering operations. As a result, the group is more in control of the quality as well as delivery timing of vessels to better adjust to changes in demand and supply conditions of the shipping cycle. MPM's shipyard is also able to carry out ship repair and maintenance works for its fleet, and has better control over the cost and time frame of such works. MPM is also expanding its fleet of offshore supply vessels to support deep sea oil and gas exploration.
Established track record in ship chartering operations. Since the commencement of ship chartering operations in 1991, the group has built a track record of 20 years in the industry. Within this period, MPM has chartered its tugs and barges for the transportation of mainly mining products such as coal and granite mix aggregates for Singaporean and Indonesian customers and end-users from the construction, property development, infrastructure and land reclamation industries. Its vessels have also been used for the transportation of heavy equipment and machineries for these customers. Though MPM's vessels had an utilisation rate of 85% in FY10 due to reflagging of vessels, the group consistently saw a 99% utilisation rate for FY04-FY09.
Initiating with BUY; but be patient. Though MPM's revenue is expected to increase with its fleet expansion and greater ship repair activity, we are more conservative in our operating margin estimates due to 1) a competitive ship repair environment, and 2) expenses from the group's sale and leaseback programme. As such, 3QFY11 results are likely to remain soft. MPM is now banking on ship chartering operations in Indonesia and ship repair as two of its main growth drivers. In addition, MPM is also venturing into offshore supply with the acquisition of three utility vessels so far. However, time would be needed to see the fruits of labour. We are initiating coverage on the group with a BUY rating and fair value estimate of S$0.48 (upside potential about 19%), based on 10x FY12F earnings.
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