Executive Overview
This comprehensive report provides an in-depth analysis of Seatrium Ltd (formerly Sembcorp Marine) – a leading name in the offshore & marine industry in Singapore. The report details the company’s financial performance, margin pressures, cost optimization strategies, and capital structure adjustments. With extensive comparison to its peers in the shipbuilding and offshore engineering sectors, the analysis delivers key insights across revenue segments, operational drivers, and ESG initiatives, ultimately leading to an “Add” recommendation based on a target price of S\$2.80.
Company Performance and Financial Highlights
2H24 Results and FY25F Outlook
Seatrium Ltd delivered a core net profit of S\$85 million in 2H24, a figure that, despite a 26% sequential decline, represents a robust 158% year-on-year improvement. The company posted 2H24 revenues of S\$5.2 billion, exceeding forecasts by capitalizing on a strong S\$23.2 billion order book. Despite a beat in revenue, the reported gross margin of 2.7% was below expectations due to a higher allocation of costs to ongoing engineering stage projects. Nonetheless, management’s cost optimisation measures and lower financing costs have played a pivotal role in realigning margins, setting the stage for a projected gross margin expansion to around 8% in FY25F.
Earnings, Revenue, and Margin Details
In addition to revenue strength, Seatrium’s underlying EBITDA of S\$381 million in 2H24 slightly underperformed expectations on a half-on-half basis but was buoyed by “other operating income” gains – notably from fair value adjustments and JV liability reversals. The company’s SG&A expenses declined by 11% sequentially to S\$151 million, translating to an improved percentage of total revenue (3.5% on a full-year basis, down from 5% in FY23).
Cost optimization has been further highlighted by the drop in the cost of debt to 4.9% in 2H24, following active debt repayment and refinancing activity. Concurrently, net debt was reduced by approximately S\$1.1 billion, reflecting a strong focus on financial efficiency and book clean-up following the merger with Sembcorp Marine and Keppel Offshore & Marine.
Order Book, Order Wins, and Capital Outlook
With an impressive S\$23.2 billion in the order book and order wins recorded at S\$15.2 billion, Seatrium continues to demonstrate strong project execution capabilities. The report maintains an FY25F order win target of S\$6 billion, underpinning the company’s growth prospects in a challenging market environment. The improved EPS guidance – raised by 12% for FY25F – further emphasizes the company’s strategic focus on delivering sustainable shareholder returns, despite an enlarged share base and higher dividends.
Deep Dive into Key Financial Metrics
Revenue and Profitability Breakdown
The detailed financial summary reveals impressive growth across several key indicators:
- Revenue: Growing from S\$7,291 million in Dec-23A to a forecasted S\$9,788 million in Dec-25F, reaching S\$10,269 million by Dec-27F.
- Operating EBITDA: A notable turnaround from a loss of S\$1,116 million in Dec-23A to an EBITDA of S\$913 million in FY25F, and improving further in subsequent periods.
- Net Profit: From a loss of S\$28 million in Dec-23A to a forecast of S\$306 million in Dec-25F, scaling up to S\$612 million by Dec-27F.
- Core EPS: Adjusting from a negligible figure in Dec-23A to S\$0.09 in Dec-25F, further growing to S\$0.18 by Dec-27F.
Margin Expansion and Efficiency Improvements
While the 2H24 gross profit was noticeably below the S\$329 million forecast, the company’s focus on margin expansion remains clear. The targeted improvement in gross margin to around 8% in FY25F is predicated on the timely and efficient delivery of legacy US projects starting in 1Q25F, which will offset the current challenges posed by ongoing engineering stage projects. Operating EBITDA margins are also projected to improve steadily, reinforcing the company’s overall turnaround strategy.
Balance Sheet and Cash Flow Strength
The balance sheet remains resilient with total equity forecasted to increase from S\$6,416 million in Dec-23A to S\$7,548 million by Dec-27F. Net debt improvements, combined with healthy cash flow metrics – free cash flow to equity reaching S\$940 million by Dec-27F – provide a solid foundation for future investments and strategic flexibility. Key ratios such as ROE, ROIC, and net gearing are trending positively, further underscoring Seatrium’s improved financial health.
Cost Optimization, Debt Refinancing, and Operational Initiatives
Cost and operational efficiencies remain at the forefront of Seatrium’s strategy. The reduction in SG&A expenses and lower cost of debt are critical drivers for the improved EPS outlook. The company’s aggressive measures – including the clean-up of non-core assets and targeted opex optimization – have directly contributed to the strengthened EBITDA performance, while also improving margin expansion prospects in the near term. These structural improvements are crucial, particularly in light of the ongoing investigations by the Monetary Authority of Singapore (MAS) and Commercial Affairs Department (CAD), which have the potential to further refine the company’s ESG profile once resolved.
Peer Comparison and Market Position
The report provides a detailed comparative analysis with key peers across multiple regions. In the peer review, Seatrium is examined alongside notable companies such as Keppel Ltd, Capitaland Investment, China CSSC Holdings, Korea Shipbuilding & Offshore, Samsung Heavy Industries, and others.
Key highlights from the peer comparison include:
- Valuation Multiples: Seatrium is trading at a P/BV of 1.23x in FY25F compared to peers, with a target based on a 1.5x FY25F P/BV multiple.
- Dividend Yield: The dividend yield of Seatrium is projected to increase from 0.63% in Dec-24A to 1.47% by Dec-27F, supporting the stock’s attractiveness.
- ROE and EPS Growth: With forecast improvements in both EPS and ROE, Seatrium is positioned competitively within the Singapore shipbuilding and global offshore sectors.
- Market Ranking: The consistency in the “Add” rating, supported by consensus ratings of 8 Buy, 1 Hold, and 0 Sell, reflects strong market sentiment and favorable long-term prospects.
This robust peer framework underlines Seatrium’s advantageous position against international and domestic shipbuilders, particularly given its extensive order book and margin expansion potential.
ESG Performance and Future Outlook
Seatrium’s ESG profile is a defining feature of its current and future business strategy. With an overall ESG combined score of C+ by LSEG, the company has achieved commendable ratings in the Environmental, Social, and Governance pillars, earning grades of B, B+, and B+ respectively.
Key ESG initiatives include:
- A target to generate 30% of annual company turnover from sustainable product solutions.
- Commitment to 100% compliance with product safety and health requirements.
- Striving for above-95% customer satisfaction in all projects.
- Pledging zero harm to the environment.
- Ensuring 100% of contracted procurement spend is in strict compliance with the company’s Code of Business Conduct and Supplier Code of Conduct.
The report notes that improvements in clarity regarding the MAS and CAD investigations will likely enhance Seatrium’s ESG rating, particularly by mitigating controversy-related risks.
Analyst Rating, Recommendation, and Final Thoughts
Based on the extensive analysis, Seatrium Ltd is maintained at an “Add” rating by CGS International. The target price has been adjusted to S\$2.80, down from the previous target of S\$2.90. This adjusted target reflects an alignment with a 1.5x FY25F P/BV multiple, alongside an enlarged share base and an incremental dividend yield that now supports higher shareholder returns.
Key re-rating catalysts include:
- Margin expansion as ongoing projects progress from the engineering stage.
- Finalisation of investigations by MAS and CAD, which are expected to further improve the overall governance and ESG profile.
- Operational efficiencies and robust capital management, which underpin a favourable outlook for EPS growth.
Downside risks remain, notably around potential cost overruns and project cancellations. However, the company’s proactive cost optimization and refinancing initiatives mitigate these risks.
Conclusion
Seatrium Ltd’s comprehensive turnaround strategy – underscored by strong revenue execution, rigorous cost control, and strategic investments – positions the company as a compelling prospect within the offshore & marine sector. With a solid order book, improved profitability metrics, and a favorable comparison to its regional and global peers, the “Add” recommendation reflects a confident long-term outlook. Stakeholders and investors alike are encouraged to monitor developments closely, particularly as margin pressures ease and ESG governance further solidifies the company’s market standing.
Additional Company and Sector Insights
Beyond Seatrium’s core performance metrics, the report also offers macro insights into the broader landscape for shipbuilding and offshore operations. A detailed revenue breakdown shows diversified income streams from shipbuilding, ship chartering, and other services, while further segmentation by revenue type (ship and rig building, conversion, offshore platforms, repair and maintenance, and specialised shipbuilding) reinforces the sector’s growth potential. Peer comparison data across companies in Singapore, China, Korea, Japan, and the US further validate Seatrium’s competitive positioning, with its valuation multiples and yield figures standing out in a market that prizes efficiency and robust order execution.
