DBS Group Research has kept its "buy" call and $3 target price on Seatrium after it announced earlier this morning it has secured a contract to build a floating production unit.
The contract is awarded by BP and the so-called Kaskida FPU is to be used in the Gulf of Mexico.
"While contract value is undisclosed, we estimate that it could be worth over $1 billion given the work scope," says DBS.
As such, this will bring Seatrium's year-to-date order wins to some $14.5 billion, and its total order book to $23 billion, enough to cover three years' worth of revenue.
Besides "robust" order wins, DBS is looking forward to another positive development: the conclusion of a joint investigation of Seatrium by the Monetary Authority of Singapore and the Commercial Affairs Department over long-running Operation Car Wash in Brazil dating back from the time Seatrium was operating as Sembcorp Marine .
The conclusion of this probe, "possibly by year end", will remove on overhang on the stock, says DBS.
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DBS believes that Seatrium is on track to deliver strong earnings recovery next year with the delivery of most legacy contracts this year, which were undertaken at lower margins, plus the execution of higher margin new contracts at gross margins of between 10 and 15% gross margin.
The target price of $3 is based on 1.5x price to book value.
Seatrium shares changed hands at $1.96 as at 11.39 am, up 1.55%.
