In his Mar 27 initiation report, Maybank analyst Hussaini Saifee expects structural demand tailwinds and strengthening margins to support Seatrium’s earnings per share to grow by a 27% compound annual growth rate from FY2025 to FY2028.
At the heart of his investment thesis is the sustained geopolitical tensions and conflict which reinforces energy security and supply diversification via new fossil fuel sources and renewable energy.
Observing that with breakeven prices of US$37 to US$43 ($47 to $55) per barrel, offshore is one of the lowest-cost sources of new oil supply. As such, he expects this to drive demand for the production of newbuild floating, production, storage and offloading (FPSO) vessels and cites industry estimates of 40 to 50 FPSOs pipeline up to 2030.
For offshore wind in which Seatrium has won a contract for recently, Hussaini believes the sector will grow at a CAGR of around 15% up to 2035.
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Noting that Seatrium is pursuing an order pipeline of more than $32 billion, Hussaini projects the Mainboard-listed company to win $10-11 billion worth of contracts over the next three years. The way he sees it, profit margins are at an “upcycle” as the company pursues higher-margin projects and achieves operational efficiencies.
In his report, Hussaini forecasts Seatrium to earn gross margins of 9-11% from FY2026 to FY2028, an increase from 7.4% in FY2025. The stronger margins will be supported by a “cleaner execution base”, with low-margin non-FPSO legacy work making up less than 1%, or $220 million, of the order book while 95% of the backlog comprises repeatable series-build projects.
He also points out that Seatrium is pivoting from lower-value repair work towards higher-margin conversions, with a $2 billion pipeline in floating, storage and regasification units, floating storage units and powerships.
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From the cost control perspective, Hussaini believes cost tailwinds “remain meaningful”, pointing out that Seatrium has achieved more than $150 million in annualised cost savings post-combination of Sembcorp Marine and Keppel Offshore and Marine as well as more than $200 million of divestments targeted by FY2028. The company has also decreased debt with net leverage at 0.8 times.
Based on the discounted cash flow model, Maybank values Seatrium at $3.10 per share, using an 8.4% weighted average cost of capital and 1% terminal growth.
