Will Strong Contracts Fuel Seatrium's Earnings Turnaround?

According to Bloomberg, the company is slated to release its latest financial statement on August 2, prior to the trading hours, and anticipates posting a net profit for the first half of 2024. The current consensus target price stands at S$2.71, compared to Wednesday's closing price of S$1.68, signifying a potential upside of 62.8%.

Since the beginning of the year, Seatrium has continued to accumulate high-value contracts. As disclosed in the latest operational performance update on May 28, the companyhas achieved order wins of over S$11.4 billion.

In the past two months,Seatrium has consistently secured significant contracts. On June 10, Seatrium announced a joint venture with GE Vernova, a subsidiary of General Electric Company, securing a contract awarded by TenneT to construct the third offshore high-voltage direct current (HVDC) converter station.The company has also obtained a letter of intent from BP Exploration & Production Inc., potentially leading to a comprehensive Engineering, Procurement, and Construction (EPC) contract for a Floating Production Unit (FPU).

Since July, the company has successively revealed secured contract agreements with Teekay Shipping (Australia), a premier ship management firm, for the repairs and upgrades of a fleet of vessels as part of the Australia Defence Maritime Support Services Program (DMSSP), as well as with Angelicoussis Group, Greece’s largest shipping company. Furthermore, last week, the company announced it has secured a series of repairs and upgrades contracts totaling an aggregate value of S$180 million from various partners.

Looking ahead, according to estimates from Seatrium and externalinstitutions, the company is poised to capitalize on market opportunities estimated at aroundS$500 billion over the next five years in four key areas: offshore oil and gas resources, offshore wind power, ship repair and modification, as well as carbon capture and storage (CCS).

The company secured a S$400 million green revolving credit facility this year to fuel growth in marine engineering and renewable energy sectors. In the fiscal year 2024, the firm is set to enhance its financial performance, enforce cost management strategies, refine its cost structure, and ensure projects are delivered safely, promptly, and efficiently within budget constraints. Moreover, it aims to expand its service offerings to capture an influx of new orders.

At the Investor Day event held in March this year, the company unveiled its sustainability targets. It anticipates achieving an EBITDA of at least S$1 billion by the 2028 fiscal year or sooner, with a return on investment of at least 8% and a net leverage ratio that meets or falls below the current range of 2-3 times.

Seatrium might be impacted due to its involvement in the "Operation Car Wash" anti-corruption investigation initiated by Brazilian authorities in 2014. On June 15, the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) requested additional information from Seatrium pertaining to the inquiry. Both MAS and CAD are jointly investigating potential offenses committed by the company.