The company on July 31 reported 1HFY2025 earnings of $144 million, while up 301% y-o-y, is at the lower end of consensus estimates of between $290 million and $400 million for the full year FY2025.
Ho points out that if taken into account the adjustment for the reversal of legal claims impact of $11 million and provisions for onerous contracts amounting to a negative $43 million, core net profit would have been around $173 million, which brings it closer to the mean of consensus forecasts.
At this level, it would imply that Seatrium was able to generate core gross margins of 8.2%, a strong rebound from 3.6% in 2HFY2024, which, from Ho's perspective, reaffirms the company's operational improvement and earnings recovery.
She is optimistic that the company can continue to eke out better margins from more profitable projects, cost rationalisation, and series-built efficiency gains.
See also: OCBC's Lim cuts fair value for SingPost to 49.5 cents
However, Seatrium's order flow has visibly slowed. As at the end of June, its total orderbook was $18.6 billion, versus $21.3 billion from a quarter ago.
"Nevertheless, management remains confident and is actively pursuing new projects with an order pipeline worth $30 billion," says Ho.
In another positive development, the company has finally settled corruption probes in Brazil. "The news should be taken positively for Seatrium, removing the overhang," says Ho.
See also: CGSI's Ong raises target price for BRC Asia to $4.30 on healthy industry fundamentals
After reducing her order win assumptions and lowering her expectation of share of income from associate and joint ventures, Ho has trimmed her net profit forecast by 16% for FY2025 and FY2026.
Ho says that re-rating catalysts for Seatrium will come from operational improvements and order wins.
"After 2.5 years of post-merger integration and settlement of Brazil-related litigation, Seatrium has emerged stronger and more competitive with its global peers," she says.
She expects further productivity and efficiency gains as Seatrium gradually executes the repeat orders for Petrobras FPSO units and other higher-margin contracts secured post-merger.
"The recovery is further aided by the brighter outlook for order wins in both conventional energy and renewables and new energies," says Ho.
Her new target price of $2.96, from $3 previously, is based on 1.5x FY2025 PB.
In her separate note on July 31, Ada Lim of OCBC Investment Research is cheered by the improvements reported by the company.
For more stories about where money flows, click here for Capital Section
She notes that the "cadence" of contract wins has slowed, as some end customers have been delaying their final investment decisions because of broader macroeconomic uncertainties.
Nonetheless, Lim says that Seatrium has emphasised its commitment to convert a robust pipeline of opportunities into its order book.
All things considered, Lim has finetuned her assumptions, but has kept both her "buy" call and fair value estimate of $2.76, which is based on FY2025 P/B multiple of 1.4x.
Lee Chokwai of Morningstar is similarly upbeat. In his July 31 note, he has kept his four-star rating and $2.92 fair value. The 1HFY2025 results were within expectations, and that the company's shares are now deemed undervalued.
"Despite macroeconomic uncertainty and geopolitical risks, we believe Seatrium's margin and earnings improvements reinforce our long-term positive outlook. Its multipronged strategy and proven execution should underpin its resilience amid continued external volatility," says Lee.
Citing Seatrium's "solid execution track record" and longstanding client relationships, Lee has kept his order-win assumptions, along with his FY2025-29 earnings forecasts.
Seatrium shares gained 2.2% to change hands at $2.32 as at 11.24 am.
