Event
Marco Polo Marine’s (MPM) share price has risen by about 20% from its low of $0.32 last month, buoyed by a slew of new order wins and regulatory approval for its offering of Taiwan Depositary Receipts. The TDR issue will comprise 25m new shares and 26.19m vendor shares held by certain existing investors of the company. Nevertheless, we downgrade the stock to HOLD given that it is currently trading near our newly-revised target price of $0.44.
Our View
If the proposed TDR listing eventuates, the new shares would constitute about 6.8% of MPM’s enlarged share capital. We reckon that part of the net proceeds, estimated to be about S$10m, could be used to reduce the company’s borrowings and lower net gearing which was 50% as at end-June. In a credit tightening environment, the cash injection will also help to improve its working capital position.
MPM announced last week that it has secured a shipbuilding order, worth about $10.5m, to
build five deck cargo barges for its Indonesian associate BBR. The construction of the barges will begin next month at its Batam shipyard with delivery scheduled in July 2012. We estimate MPM has clinched approximately $36.8m worth of newbuild contracts (mostly tugs and barges) in FY Sep11.
The broad market sell-off has prompted management to embark on active insider purchase and share buybacks since March this year. Executive Chairman Lee Wan Tang has bought close to 4.9m shares in the open market at $0.33-0.39 per share. He currently owns almost 57% of MPM, including his deemed interest held by Nautical International.
Action & Recommendation
We trim our FY Sep11/13 EPS estimates by 11-14% mainly for the ship chartering segment in consideration of our cautious view on the O&M sector. Accordingly, our target price slides from $0.50 to $0.44, still pegged at 8x FY Sep12F PER. Downgrade to HOLD on limited upside.
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