After experiencing challenges for close to a decade, the tide has seemingly turned for integrated logistics operator Marco Polo Marine. The company — which draws its revenue from ship chartering, shipbuilding and repair — has seen a tailwind recovery, amid signs of a resurgence in the oil and gas sector, the rationalisation of the offshore service vessel (OSV) industry and an expansion into the renewable energy sector.
These efforts have borne fruit for the company. On Nov 26, the company reported earnings of $14.8 million for its FY2021 ended Sept 30, from the losses of $9.2 million incurred in the year before. While the bottom line was partly lifted by one-off items such as disposal of assets, operating income improved as well. Its cash position also improved to $20.3 million as at Sept 30, from $13.6 million during the same period last year.
The firm’s revenue for FY2021 was also up 49% y-o-y to $46.1 million, as demand for both its shipbuilding and repair and ship chartering segments came in higher than pre-Covid-19 levels. With an income of $26 million, its shipyards in Batam have been kept busy, as more companies sent their vessels for repair works there when activities at Singapore’s shipyards were curtailed because of the pandemic.
Marco Polo Marine CEO Sean Lee said in a recent interview that Batam became a viable alternative, given its proximity to Singapore. Spanning approximately 350,000 sq m and a seafront of roughly 650m, its Batam shipyard — which has three dry docks — is able to undertake projects involving mid-sized and sophisticated vessels.
However, it was not always the preferred choice for customers. “People think the quality is bad, until they get there,” Lee tells The Edge Singapore. These days, he claims that their customers — many from the largest container liners based in the republic — often “never look back” once they have tried their services in Batam, as prices are around 15% to 20% lower than what is charged in Singapore.
These developments, he says, have helped to offset a decimation in shipbuilding activity. Despite this, the company continues to explore other opportunities — like the construction of two smart floating fish farms for the Singapore Aquaculture Technologies, which will use advanced technology and a green process to produce at least 500 mega tonnes of fish annually for local consumption.
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Meanwhile, the strong ship chartering revenue — which came in at $20.1 million in FY2021 — followed higher utilisation rates for the company’s 11 OSVs, two maintenance work vehicles and 24 tugs and barges. Lee thinks Marco Polo Marine’s latest set of numbers are “commendable”. More importantly, he is also optimistic about the momentum ahead.
However, he is apprehensive of the challenges that the prolonged pandemic may pose to the offshore and marine industry. For now, the market has recognised the improvement in Marco Polo Marine. Year-to-date, its shares closed up 180% at 2.8 cents on Dec 2, valuing the company at $98.8 million. As at Sept 30, its net asset value stood at 3.3 cents, up from 2.8 cents in the previous year.
Tough days behind them?
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The road ahead may be challenging, but Lee is no stranger to hurdles. For example, he spent years keeping Marco Polo Marine afloat as oil prices plummeted from around US$120 per barrel in 2015 to about US$40 per barrel in 2017. This eventually triggered a protracted downturn in the oil and gas industry.
At that time, the demand for oil was 98 million barrels per day, while the supply was slightly over that. “Those days were the hardest I had ever encountered. Everything crumbled when oil prices collapsed,” Lee remembers. Many industry operators went bust as funding from the banks evaporated. Being a capital intensive industry, it was crucial to get leverage from banks, or what was considered the most straightforward way in the past. What this meant was that, companies were made to pay back all their obligations, once the industry started to collapse.
“That’s where the problem started,” he continues. Lee went on to search for investors and liquidity sources, in hopes of getting funds to shore up Marco Polo Marine. “When searching for investors, I visited 150 people, and was rejected 141 times. The process of knocking on every single door, one after another, wasn’t an easy one.”
But funding was not the only challenge. Once the investors were onboard, Lee had to get the banks and eventually creditors, bondholders and shareholders to buy his proposal.
“The thought of the whole thing is almost impossible,” Lee continues. He eventually managed to get close to $60 million in rescue financing a year later, which was pooled together by nine investors, including Apricot Capital, Penguin International, and major shareholders of Yanlord Capital, Soilbuild and Oxley who had injected funds in their personal capacity.
Lee’s pitch was that while the predicament was a cause of concern, the oil and gas industry would eventually bounce back. They agreed to the proposal and that support helped Marco Polo Marine to restructure and tide through the crisis. “I think we were lucky to be able to do this and clean the whole balance sheet. I think we are the only ones that managed to do that,” says Lee.
Were there lessons learnt from that experience? “I didn’t have a crystal ball in front of me then, so I would not have known what would happen. The decisions I made back then were based on whatever information I could get then and there.”
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Diversified revenue streams
Financial recovery aside, Lee says the pandemic has also put sustainability into the spotlight. Shipbuilders, he adds, are moving towards ships with diesel-electric propulsion systems promising better fuel efficiency. In fact, the day may come when we will see vessels solely operated by a lithium-ion battery.
While these developments are of great benefit for the environment, it comes at a price: A hit on the demand for fuel. However, Lee says he has been looking out for opportunities outside the confines of the traditional oil and gas sector in 2018. His hope was to create more diversified revenue streams, and eventually looked at opportunities offered by wind farms in Taiwan. Wind farms operate offshore so they have more consistent access to wind. They are also seen as more efficient, with one turn of an eight-megawatt wind turbine able to provide electricity for a home for 24 hours.
In 2018, Lee believed the shift towards wind farms could take some time. However, the sector is now seen to be gaining traction across Taiwan, Japan, Korea and Europe. For instance, Taiwan is looking to have 5.5 gigawatt (GW) of wind energy by 2025 and 15GW in 2035. Meanwhile, China is looking at 50GW by 2030, Japan is aiming for 45GW by 2040 and Korea is gunning for 12GW by 2030.
“Offshore wind farms are low-hanging fruit in the region, there is a lot of potential for the construction and installation of such projects,” says Lee. Agreeing, RHB analyst Jarick Seet says this could be “a potential major growth driver, especially with the influx of investments coming into this space”. His comments are in line with data from the International Energy Agency (IEA) which show that 40% of the full lifetime costs of an offshore wind project, have synergies with the offshore oil and gas sector.
Staying agile
Lee says all that needs to be done is a re-activation of his 11 vessels — which have been “warm laid” or “cold laid” due to the pandemic — so they can support the construction of the wind farms. For instance, its anchor handler vessels are used to support the installation of the wind farms. He is now looking to double the number of vessels on the wind farm to 40% by the end of FY2022. RHB’s Seet predicts that at least 50% of Marco Polo Marine’s fleet will be servicing the renewable energy sector by 2Q2023. The oil and gas service will continue to shore up revenue for the company and he estimates that its revenue and margins will benefit from a 5% to 10% rise in vessel charter rates in 2022, he adds.
Seet, who has a “buy” call and 4 cents price target on Marco Polo Marine, expects the wind farm ventures to translate into further 20% to 30% y-o-y growth in vessel chartering revenue this year and a corresponding expansion in the company’s gross profit margin.
For the moment, Marco Polo Marine is looking to increase its stake in PT Pelayaran Nasional Bina Buana Raya (BBR) to 72%, from its current 34.8%, through a rights issue that will cost the former US$17 million ($23 million). With this, PT BBR will transition from an associate company to a subsidiary of Marco Polo Marine. Lee believes the move will contribute positively to Marco Polo Marine, given PT BBR’s track record for having positive operating cash flows in the last three years.
For a company that started off as a tug and barges operator carrying granite, sand and commodities in Indonesia before expanding into shipyard operations, Lee says: “Our agility is what sets the company apart. I think our balance sheet is also strong so it makes it even easier for us to do what we want.”
Cover image of Sean Lee, CEO of Marco Polo Marine: Albert Chua/The Edge Singapore
