Introduction to Seatrium

Seatrium, a leading integrated shipyard, offers one-stop engineering solutions for the offshore oil & gas and renewables industries. The company recently merged with Keppel Offshore Marine in the first quarter of 2023, enhancing its capabilities and market reach.

Current Market Position

As of the latest update, Seatrium’s share price stands at S\$1.95, with a target price set at S\$2.80, indicating a potential upside of 43.6%. The company’s market cap is S\$6,618.5 million, approximately US\$4,972.2 million, with an average daily turnover of US\$37.6 million over the past three months.

Financial Highlights

Seatrium has demonstrated solid financial performance with notable milestones in its recent projects. In 2024, the company is expected to achieve a net turnover of S\$8,343 million, a significant increase from S\$7,291 million in 2023. The EBITDA is projected to recover to S\$657 million in 2024 from a negative S\$1,116 million in 2023.

Key Projects and Developments

Successful Project Deliveries

Seatrium’s 3Q24 business update highlighted the successful delivery of three major projects year-to-date. The significant milestones include the TenneT High Voltage Direct Current (HDVC) project achieving its strike steel milestone and the installation of a 13,000-tonne offshore converter platform for the Sofia offshore wind farm in the UK.

Letter of Intent with Penta-Ocean

Post-quarter, Seatrium announced a Letter of Intent (LOI) with Japan’s Penta-Ocean for a US\$400 million EPC project involving a Heavy Lift Vessel for the wind market in offshore Japan. The full contract award is expected in 1Q25.

US Offshore Wind Projects

Seatrium’s management reassured that offshore US wind projects in its order book have minimal cancellation risks, supported by finalized investment decisions. Globally, offshore wind projects continue to gain government support, potentially benefitting from lower interest rates and higher contracted prices.

Completion of Legacy Contracts

Two remaining low-margin legacy contracts are on track for completion by year-end at Seatrium’s US shipyard. The potential closure of US yards will depend on the new Trump administration’s policies regarding companies with US assets.

Repairs & Upgrades Segment

This segment has provided non-cyclical and foundational revenue through numerous Favoured Customer Contracts (FCCs). The completion of 192 repair and upgrade projects for 9M24 underscores its robust performance. Notable wins post-quarter include a carbon capture & storage retrofit for Mitsui O.S.K. Lines and offshore refits for China Oilfield Services Ltd and McDermott.

Seatrium aims for this segment to grow by 3-4 times by 2028, targeting a market size of S\$20-30 billion annually, driven by the mandatory repair or upgrade of ships every 3-5 years.

Share Buyback Program

Seatrium initiated a S\$100 million share buyback program on 4 June 2024, following a 20-for-1 share consolidation. To date, the company has spent S\$29 million repurchasing approximately 18 million shares at an average price of S\$1.63 per share. With only 29% of the authorized amount spent, further share buybacks are anticipated to support the share price in the near to medium term.

Earnings Forecast and Risks

Maintaining our earnings forecasts, key risks include weaker oil prices potentially impacting market sentiment towards Seatrium.

Valuation and Recommendation

We maintain our BUY recommendation with an unchanged P/B-based target price of S\$2.80. This target price reflects a P/B multiple of 1.4x, which is 1 standard deviation above the company’s five-year average, applied to its 2025 book value of S\$2.04. This valuation is justified by Seatrium’s strong global competitive position.

In the near term, the completion of the MAS/CAD investigation could act as a key re-rating catalyst.

Sector Outlook

We maintain an OVERWEIGHT sector view, favoring Seatrium for its strong position in offshore marine dynamics and renewables industry demand. The normalization of economic activities is expected to boost shipping volumes, positively impacting the repairs and upgrades segment.

Future Opportunities

Seatrium’s addressable market is expanding beyond traditional oil and gas projects to include carbon capture usage and storage, floating LNG, and ammonia storage and transport, which are integral to the hydrogen energy chain.

Share Price Catalysts

• New orders for rigs, offshore renewable installations, or fabrication works.
• Repairs and upgrade works for cruise ships and other commercial vessels.
• Changes in US regulations and policies, potentially increasing demand for offshore assets.

Financial Metrics

Seatrium demonstrates sequential improvement in EBITDA, with significant growth projected in the coming years. Key financial metrics include:

• EBITDA margin expected to reach 11.3% in 2025.
• ROE projected at 4.4% in 2025.
• Net profit anticipated to grow by 181.5% in 2025.

Conclusion

Seatrium’s robust financial performance, strategic project wins, and expanding addressable market position it for continued growth. With a strong competitive edge and potential re-rating catalysts, Seatrium remains a compelling investment opportunity.