“The cadence of contract wins seems to have slowed,” says OCBC Investment Research’s Ada Lim, who kept her “buy” call but cut her revenue forecasts given the downside risks to order wins. Lim has also lowered her fair value estimate to $2.76 from $2.82, which remains pegged to a target FY2025 P/B multiple of 1.4 times.
Citi Research’s Luis Hilado, who maintained his “buy” call and target price of $2.65, attributed Seatrium’s lower order book to the uncertainties caused by global trade and tariffs.
During the results briefing, Seatrium CEO Chris Ong said the impact on the group’s project deliveries would be “minimal”. Instead, he expects suppliers to be more significantly affected, particularly those with plants producing goods in the US or China. He noted that most of the group’s products are not manufactured in the US.
On the softer order wins, Ong says that he couldn’t call it “weak”, adding that the team is “hard at work” on its pipeline, which is “potentially very strong”. The slower quarter is not unique to Seatrium, he adds, noting that it is understandable some of Seatrium’s customers are also taking a wait-and-see approach.
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Better margins, but 2028 remains a ‘stretched target’
While no financials were provided in the quarterly update, Ong says that the group’s gross margins are “improving in the right direction”, noting that FY2024’s margin of 2.4% was lower than expected.
Contrary to expectations that the group might meet its FY2028 targets ahead of schedule, Ong maintains these goals remain “stretched” given that the current environment is far from business as usual. Still, he points to “green shoots,” such as the group’s ability to pay dividends in FY2024. That year also marked Seatrium’s first return to full-year profitability since 2017, with earnings of $157 million compared to a net loss of $2 billion the year before.
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At its investor day in March 2024, Seatrium shared several targets, including an ebitda growth target of over $1 billion by FY2028. The group also identified $300 million in annualised synergies and cost savings and $200 million in procurement savings, which Ong says is “on schedule” and is “going on well”.
“This would be an ongoing exercise,” says Ong, who adds that the group will continue to evaluate its assets for relevance or extract optimal value.
Seatrium’s new CFO, Stephen Lu, says the group’s balance sheet is “on the right trajectory”. He adds that the focus remains firmly on strengthening the balance sheet, lowering borrowing costs and maintaining adequate liquidity. Lu, who also serves as executive vice president for strategy, took on the CFO role on April 29.
Other analysts like UOB Kay Hian’s Adrian Loh cheered Seatrium’s “strong start”, noting that the group’s update reflected a “strategic steadiness”. The analyst has maintained his “buy” call and target price of $2.96.
“Seatrium’s 1QFY2025 update highlights a strong operational momentum with the delivery of ExxonMobil’s floating production storage and offloading (FPSO), steady repair projects, and robust execution of its $21.3 billion order book,” Loh writes.
Seatrium’s ability to deliver on time and within budget highlights its strong execution and leadership in offshore production and repairs, positioning it well to secure more specialised building projects, he adds. Loh highlights the group’s improved margins and the internal appointment of its CFO, which he sees as a boost to the leadership team.
Seatrium’s yard in Brownsville, Texas, is expected to contribute modestly to contract wins, though it is unlikely to be a game changer, despite earlier optimism about securing significant new orders.
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“The US industrial landscape has a myriad of hurdles and many of them appear insurmountable in the near to medium term,” Loh writes. These include the lack of skilled labour to undertake complex commercial projects like FPSOs, new generation containerships, or large dual-fuel vessels; prohibitive labour costs which start at US$70 ($90.25) per hour versus Asian yards which are at least about 50% cheaper; and “haphazard” and unpredictable federal policies which dissuade companies from long-term strategic planning.
These policy challenges were recently underscored by a 50% tariff on steel and aluminium imports, further eroding the competitiveness of steel-related industrial work in the US, Loh adds.
Despite the group’s lower overall order book, Loh says the current slate includes $7.1 billion in renewables and cleaner solutions, reflecting the company’s commitment to a path of strategic diversification.
He adds that projects such as the floating storage regasification unit (FSRU) conversion contract from Norway’s Höegh Evi in May signal a “strong order intake” and underpin Seatrium’s multi-year revenue visibility up to 2031.
Order book resilient
Morningstar Research’s Lee Chokwai also likes Seatrium’s “resilient” 1QFY2025 order book, although he believes order wins may moderate in the near term as customers re-examine their investment decisions amid market uncertainty.
The analyst, who kept his “four star” rating (out of five) and fair value estimate of $2.92, has also maintained his FY2025 order win forecast at $6 billion and expects this to increase to $8 billion in 2029.
Lee expects Seatrium’s gross margins to recover to 11.5% in FY2028 to FY2029 due to cost optimisation, the phasing out of lower-margin projects and the expansion of its series-build offerings.
“[Seatrium’s] shares remain undervalued, in our view, with its diversified capabilities and solid execution supporting a resilient order pipeline that should mitigate near-term headwinds.”
CGS International’s Lim Siew Khee has maintained her “add” call and target price of $2.08 on Seatrium as things are looking “so far so good” with improved margins and no cost overruns.
While Lim expects Seatrium’s FY2025 earnings to increase by 53% y-o-y on execution, the analyst has cut her estimates for FY2026 to FY2027 by 3% on lower revenue and order win assumptions.
The analyst estimates Seatrium’s 1QFY2025 revenue to be at $2.2 billion, which is annualised to $4.4 billion in 1HFY2025, or 10% higher y-o-y. She has maintained her gross margin forecast of 8% in FY2025, from 3% in FY2024, as Seatrium executes more projects secured at double-digit gross margins on a project level. Lim also believes Seatrium is likely to see stronger quarters ahead and potentially in 2HFY2025.
DBS Group Research’s Ho Pei Hwa has kept her “buy” call and target price of $3, with 1QFY2025 revenue estimated to be at $2.3 billion or 23% of her FY2025 estimates. “[This] seems broadly in line considering 1Q is typically seasonally lower.”
Besides order wins, which amount to $860 million year-to-date per Ho’s estimate, the analyst will be keenly watching Seatrium’s margins in its 1HFY2025 results as it will “restore confidence on earnings recovery”.
