Out of the US$360 ($464.7) million contract balance, US$250 million will be repaid under an interest-bearing credit facility of up to 10 years granted by Seatrium and this will be funded by cash generated from the vessel. Hilado notes that this arrangement results in the remaining contract being discounted but he believes that the interest rate offsets the discount.
Hilado notes that the cyclical nature of the O&M business is a reason for earnings volatility. Ongoing risks include lower-than-forecasted contract wins, contract cancellations and weaker margins. Catalysts include major contract wins and accelerated margin improvements.
Citi values the counter at $2.65 based on a P/B approach. The analyst expects the market to recognise Seatrium’s long-term prospects as new higher margin contracts could raise returns further and push ROE higher. He adds that the TP implies an estimated P/E of 17 times for 2025 and enterprise value to ebitda ratio of nine times.
Seatrium shares closed at $2.13 on Dec 22, up six cents or 2.9% from the previous trading day.
