Mermaid Maritime

Price target: UOB Kay Hian ‘unrated’

All-round growth and better margins

Mermaid Maritime (MMT), a Thailand-based subsea and offshore services provider, is enjoying a clear post-pandemic recovery, as it successfully expanded into new markets in the Middle East, West Africa and the North Sea. MMT operates eight subsea vessels, 18 diving systems and 14 remotely-operated vehicles.

“Profitability has grown materially over the past three years with management guiding for ebitda margin expansion in 2024 and 2025. In 2H2023 alone, the company doubled its order book to finish 2023 at US$734 million,” writes UOB Kay Hian in an unrated note on April 12.

In FY2023 ended December 2023, MMT increased its revenue by 23% y-o-y to US$275.4 million ($375.7 million) and reversed from a loss of US$0.2 million to earnings of US$9.7 million.

The better numbers can be attributed to all-round improvements across the different business lines. Revenue between FY2019 and FY2023 grew at a CAGR of 27%.

The leading business segment is subsea inspection, repair & maintenance (IRM), which contributed 56% of FY2023 revenue; cable laying & engineering, and transportation & installation (T&I) and decommissioning, which accounted for 29% and 15% of the topline respectively.

Thanks to better utilisation of its vessels, MMT enjoyed a 4.4ppt y-o-y increase in FY2023 ebitda margin to 13.8%.

“During our recent meeting with management, it appeared very confident that ebitda margin can continue to expand in 2024 helped by higher charter rates, continued high vessel utilisation rates and supported by a robust order book,” says UOB Kay Hian.

In 2HFY2023, MMT doubled its order book from US$337 million to US$734 million, led by a significant contract from Chevron Thailand for decommissioning work in the Gulf of Thailand.

UOB Kay Hian, citing the management, says this contract win will likely underpin its revenues for the next few years.

With oil prices seen to remain above US$80 per barrel, MMT’s revenue and earnings growth will be well supported in FY2024 and FY2025.

As old contracts expire, MMT is able to charge higher rates for new contracts and sustain high utilisation levels with new order wins, says UOB Kay Hian.

Nonetheless, key risks appear to be low daily trading liquidity, a decline in oil prices which could impact spending in the offshore oil and gas industry, and operational risks, the brokerage adds. —