Marco Polo Marine

OCBC on 7 Aug 2012

Marco Polo Marine (MPM) reported a 32% YoY fall in revenue to S$14.4m but saw a 104% rise in net profit to S$8.9m in 3QFY12, such that its results were above our expectations. Higher gross profit margins and a reversal of share of losses in BBR helped to boost net profit by 110% QoQ. The group has seen an increase in enquiries for ship repair, outfitting and conversion services. As for the chartering side, MPM expects charter rates for offshore vessels as well as tugs and barges to remain stable. We have tweaked our estimates to incorporate higher margin assumptions as well as BBR’s new functional currency. Rolling over our valuation to 8x blended FY12/13F earnings, our fair value estimate rises to S$0.53 (prev. S$0.43). Meanwhile, the stock has fallen by about 18% since its last high in mid Mar. Upgrade to BUY.

3QFY12 results above expectations
Marco Polo Marine (MPM) reported a 32% YoY fall in revenue to S$14.4m but saw a 104% rise in net profit to S$8.9m in 3QFY12. Its results were above our expectations as we were forecasting net profit of about S$5m for the quarter. Higher gross profit margins and a reversal of share of losses in associate BBR helped to boost net profit by 110% QoQ.

Ship repair driving results
The group enjoyed higher gross margin of 32.0% in 9MFY12 vs 25.2% in 9MFY11, mainly due to the ship repair division which generated substantial increases in ship repair and outfitting revenues at higher yields, particularly in 3QFY12 when all three dry docks were in full operation. We note that the group has found its niche in smaller and medium-sized vessels, servicing them well with a short turnaround time.

BBR sees reversal of losses
Recall that BBR had been impacted by unrealized foreign exchange losses in 1HFY12 due to movements in the USD against the IDR. As BBR has successfully changed its functional and presentation currency to the USD, MPM reversed its share of earlier losses from BBR (from loss of S$1.1m to profit of S$0.9m in 1HFY12) in 3QFY12. We estimate BBR contributed about S$1.5m to the group in 3QFY12.

Ship repair and chartering outlook positive
The group has seen an increase in enquiries for ship repair, outfitting and conversion services. As for the chartering side, MPM expects charter rates for offshore vessels as well as tugs and barges to remain stable, based on recent enquiries and indications. We have tweaked our estimates to incorporate higher margin assumptions as well as BBR’s new functional currency. Rolling over our valuation to 8x blended FY12/13F earnings, our fair value estimate rises to S$0.53 (prev. S$0.43). Meanwhile, the stock has fallen by about 18% since its last high in mid Mar. Upgrade to BUY.