Why Marco Polo Marine remains attractive despite 1QFY14 earnings slump

Operations growing and near-term catalyst looming.

According to OSK-DMG, Marco Polo Marine's 1QFY14 numbers might look below expectations as earnings crashed 28% yoy.

"However, adjusting profit from operations for comparability, core earnings grew 25%, dragged down only by finance costs from the S$50m drawdown in medium term notes. We believe MPM will announce the deployment of these funds soon – providing a highly-visible near-term catalyst," the research firm said.

Here's more from OSK-DMG:

Adjusted profit from operations grew 25%, but earnings down due to much higher finance costs. MPM’s 1QFY14 earnings are down 28% to SGD3.2m, but this was due to the SGD2m finance costs incurred vs SGD0.3m a year ago and SGD1.6m a quarter ago. Adjusting 1QFY13 associate income, profit from operations actually grew 25%, which we see as an encouraging sign of core profit growth.

MPM likely to rapidly deploy the funds drawn. We do not believe that MPM will tap the medium term notes funds at 5.75% without having an immediate near-term deployment plan. As such, we think that a strong possibility exists for the company to announce, in the near-term, the acquisition of some new assets to drive growth. We previously flagged certain sub-sectors within the Indonesia’s offshore market that may soon become cabotage protected, which dovetails with MPM’s strategy.

Trim FY14F earnings by 10%, but highlight upside potential. We are trimming FY14F/15F earnings by 10%/5%, as we factor in the higher finance costs. This does not take into account the contribution from the new asset(s). Hence, we will simultaneously highlight the potential for upward revision after any such announcement.

Maintain BUY and SGD0.55 TP. We continue to like MPM for its: i) exposure to the cabotage protected Indonesian offshore support vessel (OSV) chartering segment, ii) outstanding technical capabilities, and iii) low valuations. We believe that the challenges faced by its tugs and barges fleet, and shipyard division have been priced in, with the stock trading at 0.75x P/BV. The asset(s) acquisition is the near-term key rerating catalyst.

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