MARCO POLO Marine - Ship Repair Expansion To Offset Shipbuilding Downturn

Marco Polo Marine Ltd (MP) is an integrated shipping group principally engaged in: a) ship chartering, which includes the provision of chartering, re-chartering and transhipment services of tugboats and barges and b) shipyard operations, which include the provision of building, repair and broking services of tugboats and barges. As of end-1HFY09, the Group had a shipbuilding orderbook of S$51.9m, excluding S$29.8m shipbuilding projects meant for its own ship chartering business. MP currently operates a fleet of 55 vessels.

Stable and constant ship chartering revenue. The ship chartering rates for most offshore support vessels (OSV) have fallen by 20-40% from their peaks but the rates for tugboats and barges have remained stable, according to MP’s management. MP is also the exclusive supplier of chartering services of tugboats and barges to BRJ, a major customer controlled by the Lee family. The products transported for BRJ and other Indonesian customers are mainly mining products such as granite and aggregates mined in Indonesia, mainly for the construction, infrastructure, property development and land reclamation industries in Singapore and, to a lesser extent, Indonesia.

Recurring earnings through JV with Glencore International AG, one of the world’s largest suppliers of a wide range of commodities and raw materials to industrial consumers. The 50:50 JV (MPST Marine Pte Ltd (MPST)) is to jointly own and operate a fleet of tugboats and barges for the provision of transhipment services of cargoes for Glencore and/or its related corporations and affiliates. MP will procure shipbuilding and supply of an initial fleet of 24 vessels, out of which 10 were delivered and 14 are scheduled for delivery by end-09. MP expects recurring contributions to its earnings through the share of profits in the jointly controlled MPST.

Ship repair expansion to offset shipbuilding downturn. The management expects its ship repair business to contribute significantly to its shipyard operations once the second dry dock (currently under construction) becomes operational. Ship repair business tends to generate higher gross profit margin of 35-50% than shipbuilding (15-18%) and it is less cyclical given the recurring need for maintenance and repair of vessels. Management guided that each of the two dry docks has the capacity to repair six to eight vessels per month at a cost of S$150,000-S$300,000 per repair work. MP is currently trading at 1.9x P/B and 8.9x PE. The hybrid OSV sector that MP falls under is trading at 1.3x P/B and 6.3x PE.

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