PETALING JAYA: Prospects for Marine & General Bhd
(M&G) are tied to average daily charter rates (DCR) rising further in a tight market, boosted by sustained capital expenditure by upstream oil companies seeking to find new reserves or monetise them.
Kenanga Research expects the vessel owner’s earnings to jump by at least seven-fold year-on-year (y-o-y) in its financial year 2025 (FY25) ending April 30, driven by a projected 20% increase in average DCR to RM55,900, with a fleet utilisation rate of 88%.
“In FY26, we anticipate further y-o-y earnings growth of 85%, underpinned by a 13% increase in average DCR to RM64,200 and slightly higher vessel utilisation of 89%.
“Additionally, we have assumed revenue from an extra four chartered-in vessels with an earnings before interest and tax margin of 13%,” the research house stated in a report.
M&G operates a fleet of 19 anchor-handling tug supply (AHTS) vessels and two safety standby vessels and has been offering its support services to companies like PETRONAS Carigali and ExxonMobil Exploration and Production Malaysia over the past four decades.
The company also owns and manages four chemical tankers and two clean petroleum product (CPP) tankers that transport CPP and chemical products to the petrochemical and oleochemical industries.
Kenanga Research said there is potential upside to the DCR as drilling activities continue to be ramped up in Malaysia as national oil company Petroliam Nasional Bhd (PETRONAS) aims to increase the country’s oil and gas production levels.
The DCR improvement will be reinforced by the lack of new offshore support vessel (OSV) additions to the market.
This puts M&G in an advantageous position as 10 of its AHTS possess bollard pull capacity of 10,888 break horse power (bhp), which is the largest locally.
“Oil producers typically favour higher capacity AHTS vessels for more drilling activities during an upcycle in upstream capex. In addition, it owns six small-sized product tankers which generate recurring incomes to the group,” the research house stated.
M&G financial condition has also improved as it continues to de-gear’s its balance sheet. M&G has managed to bring down its net gearing from 22 times in 2020, when it undertook a restructuring of its RM923mil in debts, to 4.5 times now.
“With cashflow expected to reach comfortable levels of RM150mil to RM200mil per annum in FY25, we expect the group to be able to pare down its net gearing significantly even further, thus reducing the company’s gearing risks,” Kenanga Research added.
The research house has an “add” call on the counter with a fair value of 46 sen a share based on a targeted FY26 price-earnings (PE) multiple of 10 times on a fully diluted basis.
The valuation is consistent with its OSV-listed peers, which traded at 10.2 times PE during the 2014 upcycle in the OSV market.
“We believe the discount to the peer is justified by its older vessel age and higher net gearing.
“Our target price also accounts for the potential dilution arising from creditors potentially exercising their right to convert their irredeemable preference shares into M&G ordinary shares, which would expand its share base from the current 723.8 million shares to 2,224 million,” it noted. However, Kenanga Research highlighted the banks involved in M&G’s debt restructuring, pursuant to the call options for promoters of M&G irredeemable preference share agreement, plan not to exercise their rights to exchange the preference shares into new M&G shares until the outstanding amount has been fully settled, which stands at RM621.9mil.
M&G’s debt restructuring in 2020 with its bankers saw the company pay RM50mil upfront and settle RM150mil worth of debt through the issuance of irredeemable preference shares to the banks. It also secured additional time to settle the RM723.2mil outstanding to the banks.
