A Profit Making Company In All Market Conditions

Date: 02 May 2014

Escaped relatively unscattered during the 2008 economic crisis, Marco Polo Marine (MPM) could easily cement itself as a long term investor's darling. Net profit was $11.1m at the end of FY2008 and suffered a small dip to $10.1m during the next financial year in 2009. Considering most of its peers have either sunk deeply into the red or just dissapear from the market entirely, MPM has done well to diversify its revenue source into 2 main categories, Ship Building/Repair and Ship Chartering.

Like its predictable (but sound) profit, price of its stock, excluding its surge from the 2008 lows to the 2010 high, has been trading within a tight price range after dropping from its 2010 high. This is despite the fact that its net profit has reached new highs for the past 2 years. The reason that new profit highs were hit but price remained stagnant has got us looking into this company again.

Contribution from its 2 main sources has varied quite vastly for the past few years and that may be due to the supply and demand of the market that MPM has been operating in. From 69% in 2012, its ship building/repair business has dropped to just 36% in 2013, with its ship chartering business taking over the former's role as the bigger contributor and filling up and exceeding whatever sales that has been dropped. Whether the management has been so efficient in changing its direction according to the market conditions, superior foresight or that they are just being lucky, it is indeed very spectacular for any industry. Whatever it is, we choose to believe in Crowe Horwath (the auditor).

Financials

Gross Profit stands at 37% (after depreciation) and net profit is 27%. Pretty respectable margins. Cash has dropped from a total of around $15.9m to around $9.8m with loans standing at around $137.5m. Market capitalisation is around $124m as of the last time it was checked before this report is out. Based on our calculation, the valuation ratio (tudine's P/E) of the current price is 10x. 

Conclusion

Comparing to its competitor Otto Marine who has a market P/E of 20x with much more debts on hand, we will think MPM is reasonably priced. What actually interest us is, from what we heard, they actually have a unit who is doing renewable energy which is never mentioned once in their annual report. However, considering that the executive chairman (the lee family) has a more than 50% stake in the company, I doubt it is to do MPM any harm. It may actually contribute to an upside to the company should it be disclosed at a later stage when it is more matured and stable.