Seatrium: Strategic Business Review Focuses on Growth Roadmap, but Shares Fairly Valued

We keep Seatrium’s S51 (formerly Sembcorp Marine) fair value estimate at SGD 0.12 following its first-quarter 2023 business update. We think the firm is fairly valued currently, and we believe upside will need to be driven by significant new order wins and better-than-expected synergies generated from the merger with Keppel Offshore &Marine.

The key takeaway from the update is that the firm is working on a comprehensive strategic business review to unlock synergies and build a roadmap for future growth. The exercise is expected to be completed before the end of 2023 and includes plans such as maximizing utilization, improving efficiency, saving cost, and optimizing capital structure. With no concrete details yet, we have not factored in these potential gains into our cash flow and valuation projections. So far, Seatrium’s financial position is strengthening, with net gearing ratio declining to 0.18 times as of end-March 2023 from 0.26 times as of end-2022. Looking ahead, we believe Seatrium’s cash flow should remain healthy, given a focus on undertaking projects with positive returns.

Management did not provide guidance on when the firm will return to profitability, but we expect Seatrium to be largely breakeven in 2023 before posting a higher net profit of SGD 374 million in 2024, on the back of improved activities on a larger order book. The firm’s net order book as of end-March 2023 is over SGD 20 billion, boosted by several key contract wins year to date. The delivery of the order book is scheduled from 2023 to 2030, and this should underpin earnings visibility. It is worth highlighting that renewables and cleaner/green solutions comprise about 39% of the net order book. Management thinks the outlook for the industry is improving and the firm is actively responding to new opportunities. We forecast Seatrium will secure average annual new order wins of SGD 5.5 billion during 2023-25, given improving order visibility on the back of the ongoing energy transition.