UOB Kay Hian's Adrian Loh has maintained his "buy" call and $2.80 target price on Seatrium, as he notes that the key Singapore-listed offshore and marine play has ended 2024 with a notable contract win plus other potentially positive developments. In addition, the likely completion of probes by MAS and CAD under the Securities and Futures Act will be a key re-rating catalyst in the near term.
"We continue to like Seatrum as we believe that the company will benefit from stronger offshore marine dynamics in 2025 as well as demand for offshore vessels and structures related to the renewables industry," says Loh in his Jan 3 note.
On Dec 24, Seatrium announced it won a contract from BP to build an offshore platform for use in the Gulf of Mexico. Loh figures that the contract, whose value was not disclosed by Seatrium, is worth between $500 to $600 million.
Using Seatrium's order book of $24.4 billion as at the end of 3QFY2024 as the base, this BP contract likely brings Seatrium's order book to some $25 billion.
Loh believes that Seatrium is a strong contender for two more follow-on projects in the Gulf of Mexico also under BP. "The building of a series of such assets will enable Seatrium to capture higher profit margins given economies of scale," he reasons.
Also, Loh expects Seatrium to have completed by the end of 2024 its slew of so-called legacy contracts that have weighed down on its gross margins and have caused an overhang on the share price.
In mid-November, Seatrium delivered its fifth newbuild jack-up rig to Borr Drilling nearly a year ahead of schedule and within budget. From Loh's perspective, this bodes well for Seatrium's sequential Ebitda trend in 2HFY2024 since the completion of projects will see final payments paid to Seatrium.
Coupled with an earlier rig already delivered in August 2024, Loh estimates Seatrium will receive at least $400 - 420 million in final payments for both rigs.
Seatrium has also taken what Loh calls a "small step" into the "busy" Indian market, with a tie-up with Cochin Shipyard of Kerala to jointly design and supply equipment for jack-up rigs for India.
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According to Loh, India is trying to increase domestic production so that it can cut down its reliance on imports. "India’s pursuit of self-sufficiency in energy could be an interesting theme for Seatrium to ride on."
Seatrium has thus far spent around $43 million to buy back 25.2 million shares at an aggregate share price of around $1.72, which is equal to less than 44% of earmarked for this purpose.
Loh expects Seatrium to further support its share price in the lead-up to its 2024 results, expected in late February 2025. Since its 3QFY2024 business update on Nov 11, Seatrium has bought back over 7 million shares worth nearly $14 million.
While noting that near-term risks include weaker oil prices, Loh is keeping his forecasts for the company for now.
His $2.80 target price is based on 1.4x price-to-book which is one standard deviation above Seatrium's five-year average.
Loh reasons that this P/B multiple "appears reasonable" given Seatrium's "strong" competitive position globally as many of its peers have shuttered over the past decade.
"In the near term, the key re-rating catalyst is the completion of the investigation by the MAS/CAD," says Loh.
Seatrium shares changed hands at $2.08 as at 9.35 am, up 0.48%.
