“We are positive on the divestment as Seatrium has faced challenges with the yard, such as labour shortages and cost escalation, since Covid-19,” states Lim Siew Khee of CGS International (CGSI) in her Sept 24 note.
Keppel AMFELS was initially established in 1971 by Marathon Manufacturing to supplement the capacity of its Vicksburg facility. It was later renamed Marathon LeTourneau in 1975, when Marathon teamed up with LeTourneau Engineering. After the collapse of the offshore market in the US in the mid-1980s, the yard was sold to local investors, Allison/McDermid, before being acquired by Keppel FELS in 1991, which subsequently transformed this yard into Keppel Offshore and Marine’s rig-building arm, servicing customers in the Americas.
“Since Covid-19, we understand that the yard has faced challenges from a shortage of labour, such as welders, which resulted in cost overruns,” says Lim. The yard is also facing competition from new industries setting up in Houston, including SpaceX, which needs welders for its new office and industrial factory in Brownsville, Texas. Following the sale, Seatrium will still keep a US presence through technology centres in Houston and a service hub in Vicksburg.
With the sale, Lim estimates that Seatrium will be able to save around $20 million in annual operating expenses. Also, she believes that Seatrium’s bottom line, which has been weighed down by onerous contracts, will begin to improve.
Lim is of the view that Seatrium is on track for a core profit turnaround, driven by execution and margin improvements. Her “add” call and unchanged target price of $2.80 are based on 1.5 times 2025 P/B, which is its 10-year trading average.
Earlier in the week, JP Morgan initiated coverage on the stock with an “overweight” call and street-leading target price of $3.05, on expectations of sustained margin recovery, new order wins, and non-core asset disposals.
This combination, in the view of the JP Morgan team consisting of Sumedh Samant, Anshool Singhi, Karen Li, and Parsley Rui Hua Ong, should help drive Seatrium’s re-rating from the current 2.5 times P/NTA (Price/Net tangible asset) and 15 times FY2026 P/E levels.
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According to JP Morgan in its Sept 22 note, Seatrium’s core competitive advantages lie in its global shipyard footprint with its strong presence in Brazil, which allows it to meet “stringent” local content requirements, and also in home ground Singapore, as well as strong ties with key customers, the likes of Petrobras, TenneT, BP/Shell.
Indeed, the company boasts a deep expertise in offshore solutions, which positions it well to capture its fair share of the total addressable market of more than US$150 billion, as estimated by JP Morgan, between 2025 and 2029. Key demand drivers include oil and gas (O&G) floaters in the Americas and AC/DC converter platforms in Europe for offshore wind farms. As of 1HFY2025, Seatrium’s net order book is around $18.6 billion, equal to 1.9 times annualised revenue.
Seatrium, according to JP Morgan, is enjoying a growing momentum in its margin recovery. The analysts expect a new orders run-rate of between $9 billion and $11 billion per year, derived from the $30 billion identified pipeline as of 1HFY2025, supporting steady annual revenue of $10 billion to $11 billion.
The analysts expect Seatrium to achieve around 400 basis points of ebit margin recovery from FY2024 to FY2027, driven by contracts of similar products, which together comprise more than 90% of its order book.
On the other hand, Seatrium is putting behind it its legacy low-margin orders, along with lower overheads and synergies following the merger of Sembcorp Marine and Keppel’s offshore and marine unit.
With high operating leverage and declining depreciation and financing costs, we estimate Seatrium’s core earnings to triple by FY2027 from $200 million in FY2024.
JP Morgan analysts expect improved cash flow discipline and positive free cash flows to drive Seatrium into a ‘net cash’ balance sheet by FY2027.
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Currently, Seatrium’s share price remains in a “price discovery” mode, according to the JP Morgan team.
Despite improving financials, Seatrium’s share price has been flat since the merger of Keppel’s offshore and marine business and Sembcorp Marine in February 2023. In contrast, most Asia Pacific shipbuilders have enjoyed gains of between two and five times since then.
For further context, the two former controlling shareholders of what forms Seatrium today have seen their respective share prices surge. Sembcorp Industries is up 370% since it hived off Sembcorp Marine in September 2020; Keppel is up 60% since selling the offshore and marine unit in February 2023.
“As we expect Seatrium to deliver on its 2028 targets of more than $1 billion ebitda and more than 8% ROE [return on equity] in FY26, we expect this underperformance gap to close vs Sembcorp Industries, Keppel, and the regional peers,” the JP Morgan analysts state.
Their $3.05 target price is based on a 3.3 times P/NTA, which is +0.5 standard deviations to the mean since 2023 and the highest on the market.
