CGS International analysts Lim Siew Khee and Meghana Kande have kept their “add” call on Seatrium with a higher target price of $2.90 from $2.69 previously, as they see the likelihood of sequential improvement in 2HFY2024 ended Dec 31, 2024.
Ahead of Seatrium’s 2HFY2024 and FY2024 results, the analysts believe Seatrium is likely to remain profitable with core net profit estimated at $83 million for the six-month period and $198 million for the full year. Seatrium is likely to report its results on the week of Feb 17.
“Seatrium’s onerous loss-making projects in the US are nearing completion and could be delivered by early FY2025. Hence, our thesis of recovery in gross margins is still on track,” Lim and Kande write in their Jan 20 report.
As such, the analysts have also estimated Seatrium’s 2HFY2024 gross margins to increase to around 7%, up from 3.7% reported in the 1HFY2024. This brings the group’s full-year gross margins to around 5.6%.
That said, the group’s underlying profits could see swings from gains on the disposal of property, plant and equipment (PPE) and foreign exchange (forex) gains, but offset by claims for legal costs incurred.
With this in mind, Lim and Kande recommend investors focus on the group’s potential sequential improvement in gross margins and lower provisions for onerous contracts as a milestone.
In FY2024, the analysts estimate Seatrium’s order wins to be around $14.4 billion, lower than their previous estimate of $16 billion.
The new figure includes Seatrium’s recent commissioning contract win for BP’s Kaskida floating production unit announced on Dec 24, 2024. While there were no value estimates in Seatrium’s announcement, the analysts believe the contract is worth around US$600 million to US$700 million or around $1 billion. The figure also factored in Seatrium’s contract lapse with Golar LNG announced on Dec 17, 2024. That contract is estimated to be around $928 million in value.
With the lower order win estimates, Lim and Kande have also lowered their revenue estimates to $8.5 billion (from $8.8 billion) in FY2024, to $9.8 billion (from $11.1 billion) in FY2025 and to $10.8 billion (from $13.1 billion) in FY2026.
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The analysts have also lowered their earnings per share (EPS) estimates by 9% to 17% for FY2024 to FY2026 to reflect the lower order wins and revenue adjustment.
In FY2024 to FY2025, the analysts expect Seatrium’s gross profit margin to come in around 6% to 8%.
In FY2026, the analysts believe the group’s gross profit margin is likely to reach double digits or around 10%. This comes “as the group takes time to achieve a normalised bell-curve trend for projects”.
Looking ahead, Lim and Kande say they expect Seatrium to receive the engineering, procurement, construction and onshore commissioning (EPC) contract for Penta Ocean’s heavy lift vessel by 1HFY2025. That contract is estimated to be valued at US$400 million to US$500 million.
Seatrium is also likely to bid for Petrobras’ P-86 FPSO (or floating production storage and offloading unit) by April this year.
The analysts’ higher target price is still based on 1.5 times Seatrium’s P/BV for 2025, representing a 10-year average trading band.
As at 10.08am, shares in Seatrium are trading 1 cent lower or 0.45% down at $2.22.
