Seatrium Limited: A Return to Profitability
Seatrium Limited, headquartered in Singapore, offers innovative engineering solutions to the global offshore, marine, and energy industries. With a rich history spanning nearly 60 years, the company specializes in the design and construction of rigs, floaters, offshore platforms, and specialized vessels. Additionally, it excels in the repair, upgrading, and conversion of various ship types.
Investment Thesis
Following a successful integration and strategic review in 2023, Seatrium’s focus in 2024 is to build a profitable and resilient business. The company aims to achieve key FY28 targets, including:
- EBITDA of at least SGD1 billion
- Return-on-equity (ROE) of at least 8%
- Net debt/EBITDA of 2-3x
As of 30 September 2024, Seatrium boasts a net order book of SGD24.4 billion with deliveries extending until 2031. Despite macroeconomic uncertainties, the management remains optimistic about the company’s future.
Recent Developments
In its 3Q24 business update, Seatrium reported a net order book of SGD24.4 billion, down from SGD26.1 billion as of 30 June 2024. The company recognized approximately SGD2 billion in revenue for 3Q24, bringing the 9M24 revenue to about 74% of the full-year forecast of SGD8.1 billion.
Seatrium achieved several project milestones in 3Q24, including the commencement of fabrication works for the HVDC Offshore Converter Platform Ijmuiden Ver Beta and the installation of a 13,000-tonne Offshore Converter Platform at the Sofia Offshore Wind Farm in the UK. The Repair & Upgrades division completed 192 projects in 9M24. Additionally, the company secured SGD100 million worth of new projects, including a carbon capture and storage (CCS) retrofit, three offshore retrofits, and a major retrofit and refurbishment of a mega yacht.
Outlook and Fair Value
Seatrium continues to see a healthy pipeline of projects and is working to convert these into firm orders. The management reiterated their positive outlook for the global offshore and marine industry. The fair value estimate is maintained at SGD2.64, pegged to a forward price-to-book (P/B) multiple of 1.3x.
ESG Updates
Seatrium’s ESG rating was upgraded in March 2023 following the merger of Keppel Offshore & Marine and Sembcorp Marine. The company leads most global peers in corporate governance and is on par with industry peers in labor management, health, and safety efforts. The group-wide safety policy extends to contractors, and the largest climate-related risk is Physical Risk.
Historical Financial Performance
Income Statement (In Millions of SGD)
- Revenue for FY2019: 2,882.6
- Revenue for FY2020: 1,510.3
- Revenue for FY2021: 1,862.2
- Revenue for FY2022: 1,947.2
- Revenue for FY2023: 7,291.5
The cost of revenue for FY2023 was SGD7,500.8 million, leading to a gross profit of -SGD209.3 million. Operating expenses surged to SGD1,639.2 million, resulting in an operating loss of SGD1,848.5 million. Interest expenses stood at SGD256.9 million, contributing to a net loss of SGD2,016.7 million for FY2023.
Profitability Ratios
- Return on Common Equity for FY2023: -39.68%
- Return on Assets for FY2023: -16.03%
- Operating Margin for FY2023: -25.35%
- Pretax Margin for FY2023: -27.65%
- Net Income Margin for FY2023: -27.66%
The financial performance reflects significant challenges, with negative returns on equity and assets, and substantial operating and net income margins. However, the projections for FY24 and FY25 indicate potential improvements.
Credit Ratios
- Total Debt/EBIT for FY2023: -10.93
- Net Debt/EBIT for FY2023: -3.78
- EBIT to Interest Expense for FY2023: -1.26
- Long-Term Debt/Total Assets for FY2023: 17.02%
- Net Debt/Equity for FY2023: 0.20
The credit ratios indicate high leverage and interest coverage challenges, underscoring the need for effective debt management and improved operational performance.
Company Overview and Business Segments
Seatrium Limited, formerly known as Sembcorp Marine Ltd, was renamed following its merger with Keppel Offshore & Marine Ltd. The company provides innovative engineering solutions to the global offshore, marine, and energy industries. The key business segments include:
- Oil & Gas Newbuilds and Conversions
- Renewables and New Energies
- Specialised Shipbuilding
- Repairs & Upgrades
The company is committed to advancing global energy transition and maritime decarbonization. It caters to major energy companies, owners of floating production units, shipping companies, and cruise and ferry operators.
FY23 Revenue Breakdown
- Rigs & Floaters, repairs, etc.: 99.5%
- Ship chartering: 0.4%
- Others: 0.0%
Geographical Revenue Breakdown
- Brazil: 52.2%
- USA: 12.1%
- Singapore: 6.9%
- Others: 28.9%
