Since Seatrium was formed through the merger between Keppel Offshore & Marine (Keppel O&M) and Sembcorp Marine (SembMarine), the enlarged entity has made significant strides on the back of improved industry dynamics.
Under CEO Chris Ong, the company appears to be on track to report a full-year profit in FY2024 ended Dec 31, 2024. This puts behind the woes of a prolonged industry downturn that started in 2015, tipping SembMarine into half-year and full-year losses since 1HFY2018 and FY2018.
Of course, turning profitable for one year will not do. In an interview with The Edge Singapore in December 2024, Ong stressed that he is “very focused” on building a resilient business.
Even though the industry is unlikely to return to the robustness seen in its heydays, he believes that the market for rigs, its core product, is improving. As such, Seatrium has been actively capturing contracts in markets seeing structural growth, such as renewable energy. It is also going for its rightful share in other segments, such as repair and maintenance.
In its 3QFY2024 business update, Seatrium reported a net order book of $24.4 billion, which comprises 30 projects with deliveries till 2031. Gross contract value stood at $37.94 billion.
In its most recent 1HFY2024 results announced last August, Seatrium reported earnings of $35.97 million, reversing from a year-earlier loss of $264.4 million. Underlying profit, which excludes a one-off provision of $79 million for settlement for an old project, reached $115 million.
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With momentum riding on this earnings base built in 1HFY2024, CGS International analysts Lim Siew Khee and Meghana Kande are projecting a “strong” turnaround in 2HFY2024.
Other analysts, including Ada Lim of OCBC Investment Research, Lee Chokwai of Morningstar, and Adrian Loh of UOB Kay Hian, are similarly bullish. They laud Seatrium’s “steady cadence” of project delivery and contract wins in 3QFY2024.
The string of contract wins continued into last December, with BP awarding a contract for the Kaskida floating production unit, estimated by DBS Group Research to be worth more than $1 billion.
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Despite the order wins and bullish outlook, the company’s share price has remained subdued. Seatrium’s shares gained around 15% to $2.27 in the past month but have remained flat over the past 12 months. There remains a significant gap from analysts’ target prices, which can be as high as $3.
Analysts attribute this to an “overhang” from the ongoing probes by the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) under the Securities and Futures Act for alleged offences back in the days of SembMarine.
The probes, first announced on June 15, 2024, took the market by surprise, as Seatrium had earlier reached a deferred prosecution agreement with the Attorney General’s Chambers for corruption-related offences. Occasional updates on multi-year-long litigations, such as one announced on Nov 27, 2024, did not help matters either. In his interview, Ong assures that there should be no more “surprises”.
In a couple of updates late last year, analysts alluded to the possible wrapping up of the MAS and CAD probes soon. If that were indeed the case, Ong and his management team could then put the issues caused by the previous team behind them and move on.
After all, Seatrium is well-positioned to capture market opportunities from both the old hydrogen economy, which has remained buoyant as global energy needs remain high, and also that of renewables, which are enjoying structural growth because of the focus on sustainability.
Besides its legacy legal woes, Seatrium is also steadily completing so-called legacy contracts inked when the company was more eager to keep its yards humming than the bottom line fat. Ho Pei Hwa of DBS Group Research estimates the new contracts could fetch higher gross margins and put Seatrium on track to report strong earnings recovery in FY2025.
