Core net profit of about S$6.4m in 4QFY11. Marco Polo Marine reported a 38% YoY rise in revenue to S$20.3m and a 27% increase in net profit to S$3.5m in 4QFY11, bringing full year revenue to S$83.0m (+29%) and net profit to S$17.3m (-9%).

Revenue was in line with expectations but core net profit came in 5.5% above our forecast; we estimate recurring net profit of around S$6.4m for 4QFY11, after stripping away one-off items such as disposal gains, fair value adjustments and impairment loss on trade receivables. Other operating income was about 47% QoQ lower at S$1.7m in 4QFY11 with lower disposal gains. Meanwhile, MPM saw a higher effective tax rate of 28.4% in 4QFY11 compared to an average rate of 12.2% in 9MFY11 due to higher contributions from Indonesia and Australia which had higher corporate tax rates.

Vessel reflagging exercise substantially completed. MPM has substantially completed its vessel reflagging exercise via its Indonesian associate BBR, as part of its strategy to increase its exposure to the promising Indonesian market. This exercise is necessary to comply with Indonesia's cabotage principle, and the group is able to leverage on its business relationships in Indonesia for this purpose.

Third drydock to be completed in 2QFY12. The third drydock in Batam is also on schedule to be completed by 2QFY12. According to management, the ship repair and conversion is still healthy though margins are pressured by competition in the industry. In comparison, the outlook for the shipbuilding business remains relatively bleak, but MPM will continue to build tugs and barges for its BBR associate which is aiming for a significant fleet expansion.

Declares special dividend. Looking ahead, MPM expects its ship chartering results to be supported by its relatively young offshore business, while its shipyard is expected to deliver two additional units of offshore support vessels by 3QFY12. The group has declared a special dividend of S$0.01 per share for FY12, which will be paid on 22 Dec 2011. Since we downgraded the stock on 22 Sep 2011, the stock price has fallen 15.4% versus the FTSE Oil and Gas Index's 4.9% rise and the STI's 2.5% drop.

There is now an upside potential of 29.5% based on our fair value estimate of S$0.43, but it is still within our 30% range for small cap stocks.