Seatrium: Business Update Largely in Line; Shares Fairly Valued

We keep Seatrium’s S51 fair value estimate at SGD 0.12 following its in-line third-quarter business update. Following the recent correction, we think Seatrium is currently fairly valued. The firm continues to guide for a loss-making 2023, with first-half results affected by provision for contracts and merger expenses. We forecast Seatrium to turn profitable in 2024 and our near-term earnings estimates are unchanged. We believe significant new order wins will help to drive share price performance.

The key positive in the update is the earlier repayment of SGD 968 million of receivables due from Borr Drilling, two years ahead of its original schedule. We believe this will enhance Seatrium’s liquidity and balance sheet strength. Given the timely project deliveries and better capital management, Seatrium’s net gearing improved to 0.15 times as of end-September 2023 from 0.17 times as of end-June 2023. Meanwhile, Seatrium will finalize its strategic review by year-end and plans to communicate the outcome during first half of 2024. We expect these will include measures to increase margins, improve cost efficiency, and reap synergy from the merger with Keppel Offshore and Marine. We understand the firm is also considering a share consolidation plan.

Currently, the firm’s net order book is SGD 17.7 billion, including new contract wins of SGD 4.3 billion year to date. Renewables and other cleaner and green solutions account for about 40% of the net order book. Seatrium continues to see improvement in order visibility, underpinned by concerns on energy security and acceleration of the energy transition trend. Regarding the recent negative news flow on offshore wind projects, management believes this will be a near-term hiccup, but the long-term growth prospect remains intact. Given that Seatrium’s projects are cash flow-neutral and come with milestone payments, the firm is confident that it will not have a significant downside from its current exposure to offshore wind projects.