THE CONTEXT


• This Wednesday (16 Oct), 3 companies in the offshore energy space will present at the SGX auditorium (see details below). To attend for free, visit the SGX website.

GemComm 10.24

• There you may ask Mermaid Maritime's chief operating officer, Paul Whiley, about his heroic actions way back when he was a young naval officer on a rescue mission. Some details are here
 
A more relevant investor topic to broach is whether Mermaid's huge orderbook of decommissioning projects will continue to see thin margins or even losses, which had resulted in 2Q2024 group profit coming in at only US$2.9 million (-12.7% y-o-y).

Is Mermaid taking on decommissioning projects to build up a track record in a nascent sector, in order to entrench itself first before bidding on better terms in the future?

What was stark and dark was, 2Q group profitability fell despite a 155% jump in revenue.

This has moderated investors' expectations when viewing Mermaid's record orderbook, which has been boosted mainly by decommissioning projects. 

choppy9.24

• CGS International, which recently initiated coverage of Mermaid (market cap: S$240 million), has put out two reports within 2 weeks. The analysts forecast US$8.79 million net profit in 2H2024.

That implies a sharp upward trajectory, from 1Q's US$0.3 million and 2Q's US$2.9 million.

Even more of an eye-opener is CGS' forecast of 2025 profit of US$19.8 million. Take that with a pinch of salt?

Read excerpts below...



Excerpts from CGS International report
Analysts: Meghana KANDE & LIM Siew Khee

Mermaid Maritime (MMT SP)

■ We hosted MMT’s management for a call with investors on 7 Oct 24. Postcall, we remain positive on MMT’s fleet utilisation and order outlook.

■ Key investor questions were focused on the impact of oil prices on day rates, margin outlook and capex needs.

■ Management expects fleet utilisation to remain above 80% in 2025F, on the back of tight global vessel supply and higher oil price-driven demand.

■ We reiterate our Add call, with an unchanged TP of S$0.20, based on 11x 2025F P/E.



MermaidM subsea10.21Mermaid's subsea IRM (inspection, repair and maintenance business segment is a core contributor while decommissioning is a strongly emerging business.

Higher oil prices are likely to keep vessel demand intact
We see limited geopolitical risk to Mermaid Maritime (MMT) as major areas of conflict in the Middle East are primarily concentrated in the western region of Saudi Arabia, while MMT operates predominantly in the eastern region and Qatar.

The company may see some cost increases due to the need for alternative shipping routes when mobilising vessels from the UK or US to the Middle East.

Mermaid Maritime
Share price: 18 c Target:
20 c

AManagement noted that higher oil prices are supporting increased development in Mozambique, Guyana and Asia-Pacific. Given its favourable order outlook, MMT expects fleet utilisation to remain well above 80% for 2025F.

A continued high demand environment and limited vessel newbuilds should support day rates for its fleet, in our view.

Cost pass-through can support margins in the medium term
According to data provided by management, there were 104 diving support vessels (DSVs) in operation globally as of Jan 2018.

This number has since fallen to 56, of which seven are tied up and 27 are locked into long-term contracts. MMT typically secures contracts for 5-6 months, but some can extend much longer (for example, Mermaid Asiana has been working for Aramco for 13 years on an extension basis).

Around 75% of MMT’s contracts are long term, supporting more predictable cash flows, while the remaining 25% are kept on spot to be opportunistic of rising day rates.

While margins could soften in the near term as MMT charters in vessels at higher rates, the company expects to pass these costs to customers when signing new contracts.

Targeting capex spend on ROVs to optimise costs
In the near-term, MMT is planning to order around four new remotely operated vessels (ROVs). It currently owns 14 ROVs and has chartered another 13 units. 

Nicholas Yon analystMeghana Kande, analystThe new ROVs, costing c.US$3m-3.5m each, will be partially funded through bank financing and internal cash. MMT does not plan to purchase additional DSVs, given the high cost (US$150m each) and the need for 20-year visibility.

We maintain our Add call and unchanged TP of S$0.20, based on 11x 2025F P/E, a c.15% discount to global peers given MMT’s smaller scale.

Key catalysts include order wins, higher-than-expected day rates and fleet expansion.

We see downside risks from escalation of geopolitical tensions, poor weather and prolonged dry-dock impacting vessel utilisation, and order cancellations.


Full report here

You may also be interested in:


 

We have 1695 guests and no members online

rss_2 NextInsight - Latest News