Analysts at DBS Group Research, UOB Kay Hian and Citi Research have maintained their “buy” and “sell” calls respectively on Seatrium following the company’s 2HFY2023 ended December results release.
Seatrium posted a net loss of $1.7 billion for its 2HFY2023, bringing its full-year loss to $1.94 billion. This is much higher than the expectation of a $500 million to $600 million net loss for FY2023 due to the non-cash write downs, provisions and merger-related expenses, DBS points out.
That said, core operations achieved a net profit of $33 million in 2HFY2023, making the first time Seatrium has achieved an interim profit since 2018 from a small loss in 1HFY2023, the analysts highlight.
Citi analyst Luis Hilado says the write downs potentially pave the way for FY2024 to have a clean set of reported numbers, albeit one-off gains are possible if and when the written down assets are sold off. He adds that the in-principle settlement of its Brazil case as a non-criminal liability may lift concerns of an overhang, enabling continued contract bidding in Brazil.
“With a net contract order book built up to $16.2 billion year-to-date for contract periods lasting up to 2030, the revenue visibility and direction in the short to medium-term appears healthy. Furthermore, during its briefing, management indicated that of the current order book less than 10% are loss making and that the book should be 100% profitable by year-end,” says Hilado.
DBS highlights that 2023 is a transition year for Seatrium. Tremendous improvement in operations has been achieved, delivering over 50% y-o-y growth from FY2022 combined revenue and strong positive ebitda of $628 million.
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“A more prominent earnings turnaround could be expected from 2024 onwards, with integration synergies and improved productivity. Meanwhile, the robust order pipeline and upcoming investor day for sharing the strategic review on March 15 are near-term catalysts and confidence boosters,” the analysts add.
Meanwhile, UOBKH analyst Adrian Loh believes Seatrium will benefit from stronger offshore marine dynamics as well as demand for offshore vessels and structures related to the renewables industry. Additionally, the normalisation of economic activity should result in a greater volume of shipping activities, thus positively impacting its repairs and upgrades segment.
"While 40% of Seatrium's current orderbook is in the renewable energy space, its addressable market is arguably much larger when taking into account carbon capture usage and storage, floating LNG, and ammonia storage and transport which feeds into the hydrogen energy chain," Loh says.
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UOBKH has downgraded its net profit estimates by 8% for FY2024 and FY2025 respectively, taking into account slightly lower gross profit margins and higher interest costs. Loh's target price is lowered to 15.1 cents from 19 cents previously.
DBS has fine tuned its FY2024-FY2025 estimates by about 11% to 12%, factoring in weaker margins for old contracts and product types. The analysts have adjusted their target price to 15 cents to reflect higher provisions and impairment in FY2023.
Citi’s target price of 9.8 cents implies a FY2024 PE of 29x and enterprise value/ebitda of 10x.
As at 9.25am, shares in Seatrium are trading at an unchanged 9.1 cents.
