The following text on Marco Polo Marine -- and, to some extent, Otto Marine -- from AK71's blog is republished with permission.
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My reply: |
E H said...
Hi AK
Whether it's barges, tugs or rigs, you need to have demand before you can make one, sell it. charter out or convert.
But the problem is, there are many of such barge/tug/rig-related yards out there. Some are positioned better than others. Some have the backing of local governments on tax incentives or loans. Thus, some get the short end of the stick.
Demand wise, I see it faltering. Margins seem to be getting smaller. Technology is improving, thus the quality and lifespan of new vessels produced are getting better and longer respectively. This results in less demand for new vessels and less demand for conversions/repairs.
You know what I like? Tankers shipping LNG, and FLNG facilities. Maybe Marco Polo should have a go at them.
SEPTEMBER 24, 2014 AT 11:42 AM
AK71 said...
My replies on FB:
The transformation of MPM from a tugs and barges owner and operator to being an OSV owner and operator was what attracted me. Unfortunately, the tugs and barges business is a legacy business and cannot be terminated with the press of a button.
Its decision to become a rig owner was something not in my initial investment thesis. I rather liked the bold move although it would be financially demanding. If the tugs and barges business were to pull its own weight, it would be OK. Unfortunately, they have suffered months of weakness which seems to be due to a slow down in business activity in the run up to the Presidential election.
Now, I am just holding on to my smaller exposure to the stock and waiting because tugs and barges are not going the way of the Dodo and MPM have been in this business for decades. OSVs are transforming the business. The rig will be the big game changer for MPM.
Related post number 1 at the end of this blog post explains my actions with regards to Marco Polo Marine and why I didn't do with it what I did with Yongnam when prices ran up.
We should know our motivations for being invested and action plans that we should stick to. If there should be new developments which affect our investment thesis, having a framework will help us to decide whether to scale up or down our exposure.
SEPTEMBER 24, 2014 AT 11:46 AM
AK71 said...
Hi E H,
I think the CEO of Marco Polo Marine knows that tugs and barges are a drag on the business performance and if he did not lead the transformation of the company to be in the OSV business, the company would be well and truly sinking now.
It is his intention to slowly eliminate the tugs and barges but I have a feeling that there is some resistance internally being a legacy family business. This is a minus.
As for the rig, Indonesia's Cabotage Law will kick in at the end of 2015 to include rigs like the one MPM ordered. So, there is a good chance of chartering it out at a rate higher than the current going rates.
Marco Polo Marine's plate is probably more than full now. So, no new directions for now, please. LOL. I would rather wait to see how they develop greater competence in what they are doing now and deliver better results with the on-going transformations.
SEPTEMBER 24, 2014 AT 12:28 PM
This AHTS vessel is part of Marco Polo Marine's chartering fleet. Photo: Company
betta man said...
On the topic of osv, Vard has dropped from around $1.10 to $0.845 recently. Is Vard severely undervalued now ?
SEPTEMBER 24, 2014 AT 12:39 PM
AK71 said...
Hi betta man,
At one stage, I was looking at Vard but decided to just go in for a trade. They have their own problems which I don't fully understand.
Having said this, I cannot say that I fully understand Marco Polo Marine's business too but I think I understand it a bit better than Vard's. ;p
SEPTEMBER 24, 2014 AT 12:49 PM
finance4uandme said...
Hi AK,
How would you compare Marco Polo Marine and Otto Marine?
Otto Marine may not be as undervalued compared to Marco Polo Marine in terms of Price-Book Ratio. However, in my opinion, capabilities-wise, Otto Marine has a larger fleet of OSVs/PSVs to support offshore activities as compared to Marco Polo as well as experience in operating them as well.
So, if the offshore segment recovers with higher oil prices, Otto Marine has higher chance of clinching offshore building, chartering and operating contracts compared to Marco Polo Marine.
Would like to know how you view these two companies.
Thanks,
naro
SEPTEMBER 24, 2014 AT 1:07 PM
AK71 said...
Hi naro,
Someone asked me this question probably a year or more ago. Otto was rising from the ashes, if I remember correctly, back then.
Marco Polo Marine never did get into the kind of financial tangle which Otto got themselves into. So, I formed the impression that Marco Polo Marine's management are probably more prudent.
I also like the idea that the Cabotage Law in Indonesia gives Marco Polo Marine a natural moat which I hope they would capitalise on more rapidly. It takes time for them to expand their fleet of OSVs.
Otto has a ready fleet which allows them to capitalise on any opportunities rapidly. I don't know very much else. So, that is all I can say. :)
SEPTEMBER 24, 2014 AT 1:21 PM
finance4uandme said...
Hi AK,
Thanks for your insights! I think quite a few ship chartering firms are forming JV with partners to work around the cabotage law. I think Otto Marine went into a JV with an Indonesian company in 2013 as it was mentioned in their 2013 annual report.
I personally like how Otto Marine managed to build up its ship chartering revenue, which I think started around 2007. I think its almost 50% of their revenue stream in FY2013. This will form the basis of their recurring income and help it to tide through the offshore segments' cycle.
Thanks,
naro
SEPTEMBER 24, 2014 AT 1:38 PM
AK71 said...
Vivian Hsu, a Taiwanese singer, actress, and model, recently married Marco Polo Marine CEO Sean Lee. See story. Hi naro,
Thank you for sharing your insights.
Yes, it is true that OSV builders and owners have been forming JVs with Indonesian companies to comply with the Cabotage Law.
Recently in August, Nam Cheong and Marco Polo Marine also went into a JV.
"Mainboard-listed firms Marco Polo Marine Ltd and Nam Cheong Limited have formed a joint venture company following the sale of Marco Polo Marine Group’s 50% stake in Marco Polo Offshore (IV) Pte Ltd (the “JV Co”) to Nam Cheong Group..."
SEPTEMBER 24, 2014 AT 1:50 PM
Recent story: OTTO MARINE: Chartering fleet improvements paying off
