After years of navigating the choppy waters of the oil and gas industry, Marco Polo Marine is finally emerging with brighter prospects. The mainboard-listed company that once concentrated on chartering vessels for offshore oil and gas production is now set to benefit from its strategic shift into the expanding offshore wind sector, which is driven by the increasing demand for renewable energy infrastructure.
In an article for Marsh published in September 2020, Martin Beck, the company’s renewable energy leader in Asia, noted that the global renewable energy capacity is expected to grow by 50% from 2020 to 2025. While the growth is likely to be led by solar photovoltaic and onshore wind, Beck notes that offshore wind power has also seen “strong growth” in recent years and has “significant untapped potential.” He adds that momentum for offshore wind has also shifted from Europe to Asia.
According to the Global Wind Energy Council (GWEC), in 2023, some 680 gigawatts (GW) of new wind power capacity will be installed from 2023 to 2027, or 136GW annually to 2027.
With this in mind, Marco Polo Marine announced on Sept 20, 2022, that it would diversify into the renewables space by building its own commissioning service operation vessel (CSOV) to meet the rising demand for vessels to service the growing offshore wind industry in Asia. A new CSOV was valued at around US$60 million then, which the company said it would fund with its existing resources and borrowings from financial institutions.
The idea to enter the renewables sector came after Marco Polo Marine’s debt restructuring exercise was completed in 2018. It was looking for its next move while waiting for the oil and gas industry to recover, says Marco Polo Marine’s CEO Sean Lee, who spoke to visiting investors, analysts and media at the vessel’s launch event in Batam on Feb 12.
Lee recalls that the idea was first mooted by Darren Teo, whose family owns Apricot Capital, the private investment vehicle, and Lee’s longtime friend. Following the restructuring, Apricot became Marco Polo Marine’s largest shareholder, with a 19.5% stake in the company’s enlarged share base. The company raised $60 million from Apricot Capital and eight other strategic investors to keep it afloat.
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Lee was initially sceptical, believing the renewables sector was a significant departure from Marco Polo Marine’s area of expertise. However, he gradually warmed to the idea.
Although several ideas were pitched, the Marco Polo Marine team chanced upon the potential of offshore wind farms. They noted that the company’s vessels were being chartered more often in such farms in Taiwan during the Covid-19 pandemic.
After speaking with local operators in Taiwan, Lee engaged with several energy companies, including Orsted, Siemens Gamesa, Vestas, Hitachi Energy and GE Renewable Energy, to better understand their specific needs.
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Lee recognises that CSOVs and service operation vessels (SOVs) are the best assets for the offshore wind sector, although each has pros and cons. SOVs, which are typically used for operations and maintenance services, had long-term contracts but lower margins. Conversely, CSOVs, which serve the commissioning and installation segment, had shorter contracts but fetched better margins.
As Marco Polo Marine had finite funds, the team had to choose which asset to build.
The team eventually settled on CSOVs due to the low supply relative to the rising demand. In 2021, there were 23 CSOVs and SOVs worldwide, mostly in Europe. Of the 23 vessels, 15 were under construction.
Labour of love
Instead of modelling its CSOVs after current vessels, Lee preferred a wider hull of 21m instead of the usual width of 19m for anchor handlers and stability. He also wanted to design the 83m-long ship to suit the needs of Asian climates, specifically for Taiwan’s hotter and more humid summers compared to European climates. As such, the boat, which can comfortably accommodate up to 110 personnel on board, features a walk-to-work gangway, large windows for maximum daylight, a stronger air conditioning system and a dehumidifier. It also has a 3D motion-compensated crane and hybrid-based energy storage systems that will reduce carbon emissions by up to 20%.
Lee also focused on crew comfort, as they would have to spend an extended time at sea. The vessel includes spacious cabins, WiFi access and facilities such as a gym, cinema and karaoke room.
To call this project a labour of love for Lee is fairly apt, for the CEO was deeply involved in the vessel’s construction, from selecting the designs for the interiors, sheets and mattresses even down to the massage chair in the lounge.
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The company managed to keep the construction of the CSOV completed within the budget of US$60 million. Christened the MP Wind Archer, the vessel is expected to start contributing to the company’s earnings from 2HFY2025 ending Sept 30, says Marco Polo Marine in its 1QFY2025 results statement dated Feb 14.
But it wasn’t all smooth sailing. The CSOV was initially scheduled to be completed in the first quarter of 2024 but saw several delays. Responding to queries by the Securities Investors Association (Singapore) or SIAS, Marco Polo Marine attributed the delays to the “shortage of skilled and experienced labour” in early 2024. The issue has now been largely resolved.
“In addition, there were passenger class requirements to adhere to for the CSOV to be reflagged to Taiwan, and these requirements are typically uncommon for offshore vessels,” said the company in its response dated Jan 17.
Nevertheless, the vessel will begin work almost immediately, with Taiwan being her first stop. On Nov 20, 2023, Marco Polo Marine announced it had signed a three-year framework agreement with renewable energy services firm Vestas for its CSOV. The agreement will see the CSOV deployed across various wind farms in Asia Pacific over three years, based on a minimum utilisation commitment per annum.
Analysts mostly positive
RHB Bank Singapore analyst Alfie Yeo, who was also in Batam for the launch, remains positive about Marco Polo Marine’s prospects with the deployment of the CSOV in FY2025.
“The vessel has secured charters at strong rates for the next three years and is taking on more orders beyond that. We expect earnings to be supported by ship chartering from the rest of its fleet, driven by better utilisation and charter rates, more vessels, and higher drydock capacity,” Yeo writes in his Feb 14 report. “We understand the CSOV will serve Vestas Wind Systems and Siemens Gamesa Renewable Energy.”
“After its first deployment, Marco Polo Marine will have work lined up by its customers for the next three years. Its sales personnel are currently looking to secure work beyond this period,” he adds.
“Other markets that Marco Polo Marine intends to serve include Japan, South Korea, Australia, Vietnam, and the Philippines. With the current shortage in tier-1 CSOVs, we expect chartered out rates to be robust at [over] US$40,000 ($53,683.99) [per] day,” he continues.
CGS International analysts Meghana Kande and Lim Siew Khee believe the company’s plans to build another CSOV could take place, with delivery slated to take place around early 2028. The analysts’ report, dated Jan 15, comes after hosting the company’s management team the day before.
They add that Marco Polo Marine’s two new crew transfer vessels (CTVs), via its 49%-owned subsidiary, PKR Offshore, could add around $5 million in revenue per annum with the vessels likely to start operating from 2HFY2025. Marco Polo Marine, in its results statement, also noted that the CTVs in Taiwan will start generating income in 2HFY2025 with full benefits accruing in FY2026.
“Based on our estimates, one CTV can generate revenues of around US$2 million (or [around] $2.5 million) per annum in Taiwan. This figure could be [around] 70% higher for CTVs working in South Korea due to higher charter rates,” say Kande and Lim. “MPM currently operates two CTVs in Taiwan and one in South Korea under a framework agreement with Siemens Gamesa till 2026 with an option to extend to 2030.”
Jarick Seet of Maybank Securities, in a Dec 3, 2024, report, sees “exciting times” ahead for Marco Polo Marine in FY2025. In addition to the CSOV, he believes there should be more volume coming from the company’s fourth dry dock, which is also expected to be completed by the end of February. The expansion could bring about a 25% growth in revenue with recognition from April onwards, Seet notes.
In addition, the CTVs acquired by the company are operational and will help boost its profitability with expected rates of some US$8,000 a day, Seet estimates.
“All in all, we understand that the utilisation for the first two years will be close to 95% with rates averaging around US$50,000 [per] day. This should make a significant contribution to its profitability,” he writes. “FY2025 should be a good year for Marco Polo Marine as all engines will start firing. We think this is a good time to accumulate Marco Polo Marine with the outlook clear ahead.”
All three analysts have “add” and “buy” calls with the same target price of 8 cents.
As of Feb 18, shares in Marco Polo Marine are up 6% to 5.3 cents since the start of the year. The company reported 1QFY2025 revenue of $25.8 million, 11% lower y-o-y, as contributions from its core ship chartering and shipyard segments fell. 1QFY2025 gross profit declined by 9% y-o-y to $10.6 million as gross profit margin inched up by one percentage point y-o-y to 41%.
