After seven years of losses, Seatrium has returned to profitability. In FY2024 ended Dec 31, 2024, the offshore and marine (O&M) group reported earnings of $156.8 million, reversing the $2.02 billion loss in FY2023.
Full-year revenue was up 27% y-o-y to $9.23 billion, mainly from strong project execution and higher activity in its repairs and upgrades segment. Ebitda also surged by around 2.65 times or 166% y-o-y to $627 million in FY2024 due to revenue growth, lower overheads and divestment of non-core assets.
From the start of the year to Feb 21, Seatrium’s order book stood at $23.7 billion, up from $16.2 billion, with 27 projects with deliveries through 2031. In FY2024 alone, the company secured new orders worth $15.2 billion from its new and repeat customers.
“2024 was a fruitful year for Seatrium, marked by strong order wins, a decade-high order book and most importantly, a return to full-year profitability. The progress that we have made is reflective of our collective determination and hard work,” says CEO Chris Ong, tasked with leading the merged entity formed from two former rivals — Sembcorp Marine and Keppel’s offshore and marine unit — brought together by the industry-wide downturn.
After just two years of integration at this scale, the team is able to at least “deliver things in the right direction, because it could very easily go in a very different way,” says Ong to the media and analysts.
Strategic review
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After the merger was completed in February 2023, Seatrium embarked on a strategic review to “unlock synergies and build a roadmap for sustainable growth”, as stated in its 1QFY2023 business update dated May 12, 2023.
Following this, Seatrium identified core and non-core assets and that it would write down its non-core assets and excess and obsolete inventories. The move would “improve Seatrium’s productivity, optimise its cost structure and reduce cash operating expenses.”
One of the strategies was the “One Seatrium global delivery model” launched by Ong in his FY2023 results address on Feb 26, 2024.
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Unlike its previous yard-centric model, Seatrium’s projects are now supported by a central pool of engineering and technology resources even though work is carried out via different yards around the world. “This way, we will not be limited to a specific yard capacity or resource limitation,” said Ong at the time.
Seatrium also emerged from FY2024 with a stronger balance sheet. As of the end of December 2024, net current assets stood at $554 million, a significant improvement from $55 million at the end of 2023.
The company also reported an 8% lower net debt of $689 million in FY2024 compared to $747 million in FY2023. This was achieved through progressive and active loan repayment, offset by increased working capital project needs, says chief financial officer Adrian Teng.
He maintains that Seatrium is “on track” and is “quite close” to achieving its target of recurring $300 million in annualised savings by the end of 2025. It has also identified procurement savings of $200 million from existing projects being executed. “Some of these savings have been realised since we first set the target in March 2024 and will realise the remaining savings over time,” says Teng.
To celebrate its return to profitability and express gratitude to shareholders for their patience, Seatrium has proposed a dividend of 1.5 cents per share. Ong admits the payout is not “very lavish”. “We are still in the midst of growing, integrating and executing our order book, but at the same time, I think it’s important for us to show appreciation to our shareholders,” he adds.
Teng adds that distributing dividends was a “very, very considered decision” that shows management’s confidence that “we have the right level of liquidity, funding and balance sheet stability. “
“Clearly, we balance our retained earnings with our capital needs, for our own investments, for growth, for potential, even M&A consideration, balancing all of that, also balancing the need of our shareholders, [we] discussed with the board thoroughly that we have come out to this position, which I hope will be well received by the market and by our shareholders,” says Teng.
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Year to Feb 14, Seatrium shares gained by a quarter to its 52-week-high of $2.58 year to date, mainly attributed to the MOU Seatrium signed with BP to build the Tiber floating production unit (FPU) in the US Gulf Coast on Feb 13. Despite the company’s report card on Feb 21, the market reacted negatively, closing the day 12 cents lower at $2.38 and $2.20 on Feb 26.
Analysts adjust ratings
Following the results, Citi Research’s Luis Hilado downgraded his call to “neutral”. “With the share price rise in the past few weeks, we believe the market has largely priced in medium-term prospects and hence with an expected total return (ETR) of 7%, we downgrade to ‘neutral’,” he writes. As of Hilado’s Feb 21 report, Seatrium was trading at $2.50 per share.
The analyst has, however, raised his target price to $2.65 from $2.10 previously based on 1.2 times FY2026’s P/B valuation as Seatrium’s ROEs continue to improve. His estimates also assume that the market has already priced “low to no-risk” in the ongoing Operation Car Wash review, and as such, he has removed his previous discount on the group.
Most of the other analysts have maintained their bullish views. UOB Kay Hian’s Adrian Loh, who has raised his target price from $2.80 to $2.96, describes Seatrium’s strong results as pointing to an “undimmed outlook” and that he is confident that Seatrium’s “comeback” will be sustainable. The 2HFY2024 gross profit margin of 2.7% was slightly weaker than expected, but Loh prefers to focus on the company’s ebitda generation, which has remained strong.
Citing Seatrium’s management, Loh says that a new rig-building cycle is 12 to 24 months away, as drilling majors have yet to enter the market to order new rigs. “The company’s recent order win for equipment for a jack-up rig as well as the licence for the LeTourneau Super 116E Class rig was very specifically for the Middle East market and not a reflection of the global rig market,” he adds.
Morningstar’s Lee Chokwai kept his “four-star” rating with a higher target price of $2.92 from $2.66. He likes Seatrium’s turnaround to profitability, strong order book and growing revenue from its repairs and upgrades segment. However, he notes that a reversal of $82.4 million in provisions partly helped the bottom line, while its gross margin of 3.1%, lower than his estimate of 6%, was likely affected by provisions made for its legacy projects.
“While we lower our FY2025 gross margin estimate to 8% from 9% to factor in the slower-than-expected margin recovery from near-term provisions, we keep our longer-term forecasts intact. We believe the expansion of Seatrium’s series-build projects will continue to enhance productivity and support gradual margin improvement,” he adds.
Similarly, OCBC Investment Research’s Ada Lim kept her “buy” call and target price of $2.82 after Seatrium’s FY2024 results also surpassed her estimates. Lim upgraded her target price to $2.82 from $2.64 in a Feb 14 report after Seatrium’s share price surge.
In her Feb 21 report, Lim remained positive about Seatrium’s strong order win momentum in FY2024, its active pipeline in FY2025 and its unexpected dividend. She also likes that Seatrium is “on track” to achieve its recurring savings target by the end of this year, although she notes that the two ongoing legacy projects in the US shipyards have been delayed with management being “reticent” about the exact timeline.
In addition, Lim notes that Seatrium has “made some progress” toward its FY2028 targets and foresees that the company will be able to deliver on its targets within the next two to three years.
CGS International analysts Lim Siew Khee and Meghana Kande have kept their “add” call but with a lower target price estimate of $2.80 from $2.90 previously as they see Seatrium’s FY2025 margins beginning to normalise.
“While provisions for onerous contracts fell 38% h-o-h to $43 million, overall 2HFY2024 gross margin of 2.7% still missed our expected 6% to 7%. This is due to weaker-than-expected margins to higher cost allocation to projects (not cost overruns) and more projects at [the] engineering stage,” CGSI’s Lim and Kande write in their Feb 22 report.
“The trend should improve in FY2025, in our view, as more projects, including BP’s FPU and P-84 and P-85, progress more,” they add, retaining their gross margin forecast of 8% for FY2025. Their forecast is based on the assumption that Seatrium’s legacy US projects will be delivered in 1QFY2025.
Despite the lower target price, which is due to an enlarged share price and higher dividend, the analysts have increased their FY2025 earnings per share (EPS) estimates by 12% on lower operating expenses (opex) and financing costs. “We commend Seatrium’s efforts in opex cost optimisation, with 2HFY2024 selling, general and administrative (SG&A) [costs] declining 11% h-o-h to $151 million.”
DBS Group Research’s Ho Pei Hwa has maintained her “buy” call and target price of $3 as she lauds Seatrium’s “commendable” results, even though it was aided by write-backs.
However, Ho has lowered her FY2025 to FY2026 earnings by 10% to 14%, as she factors in lower gross margins of 7% and 9% (from 10% and 12% previously), respectively. This is partially mitigated by a 13% and 10% increase in revenue projection.
In her Feb 24 report, Ho believes provisions for onerous contracts in the US should be “minimal” going forward as the projects are close to completion and will be on sea trials soon.
Furthermore, Seatrium’s flagship projects, including Petrobras’ floating production storage and offloading (FPSO) vessels and TenneT’s high voltage direct current (HVDC) converter platforms, are set for delivery in 2025. The yards will be able to enhance efficiency on subsequent units.
