Marco Polo Marine

Kim Eng on 9 Mar 2012

Raising forecasts, upgrade to Buy. We raise our FY Sep12F-14F estimates for Marco Polo Marine (MPM) by 10-13% to factor in new contributions from the group’s recently completed third dry dock. Despite being a seasonally weak period, 1QFY Sep12 has turned in earnings that achieved 21% of our revised full-year forecasts. We upgrade the stock to Buy on rising optimism.

Ride on buoyant demand. With the commissioning of its third dry dock in January this year, we understand that this bigger and deeper facility, which measures 190m by 45m by 9m, is fully capable of docking merchant vessels up to 45,000 dwt. In our view, MPM is well-positioned to take advantage of the buoyant demand for ship repair and conversion business, bolstered by the thriving commodity shipping as well as oil and gas activities in the region, in particular Indonesia.

New order win. MPM successfully clinched a ship outfitting contract worth S$22.5m in January. Following this latest order win from an undisclosed third-party customer, the total value of newbuild, ship repair and conversion projects procured by the group increased to S$57.5m We forecast an 18% increase in FY Sep12 EPS given that about 80% of its orderbook will be recognised during this financial year.

BBR listing to crystallise value. With the completion last year of its acquisition of a 49% stake in associate company PT Pelayaran Nasional Bina Buana Raya (BBR) and the accompanying reflagging exercise, management’s next goal is to make BBR financially self-sustaining through a listing on the Jakarta Stock Exchange. Assuming that it is able to list at 8x forward PER, we estimate that MPM’s stake in BBR could be worth about 31% of its current market capitalisation. If the listing eventuates, we believe it could help crystallise value for MPM and provide a major re-rating catalyst for the share price.

Unjustified valuation gap. MPM has been a relative laggard in the recent market rally even compared with its other mid-cap offshore and marine peers. We see the widening valuation gap as unjustifiable in the light of recent positive developments. Upgrade to Buy with the target price raised to $0.48, still based on 8x FY Sep12F PER.