< Results Analysis> 1Q24 business update bright order outlook

• 1Q24 revenue on track at c.SGD2bn operational streamlining and cost reduction initiatives appears to be progressing well
• Strong YTD wins of SGD11.4bn a confidence booster, lifting orderbook to SGD25.8bn Positive order win momentum to sustain
• Pullback on MSCI rebalancing a buying opportunity Reiterate BUY and TP SGD3

Big wins from Petrobras.  We estimate that Seatrium (STM) generated c.S$2bn revenue in 1Q24 (up 40-50% y/y similar to the pace of SGD2.2bn/quarter on average in 2H23). Operational streamlining and finance cost reduction appear to be progressing well. Successful divested Batangas Yard in The Philippines at a gain, mitigating the US$68m interests payment for Akastor. There are no further contingent liabilities following Akastor&rsquo s arbitration case. Management stresses building company&rsquo s earnings resiliency and achieving > S$1bn EBITDA consistently.  STM has recently won the highly anticipated Petrobras FPSO orders &ndash both P-84 and P-85, at 30% higher than expected contract value, totalled c.SGD11bn, incorporating more electrification and green features.  This lifts the YTD wins to SGD11.4bn and orderbook to over SGD25.8bn (from SGD16.2bn as of Feb-24), close to the peak orderbook of SGD27.5bn in 2Q13. 

Robust order outlook pullback on MSCI deletion a buying opportunity. STM expects to finalise the contract for third High Voltage Direct Current (HVDC) electrical transmission systems for TenneT, a leading European grid operator in Jun, adding SGS1.6-1.8bn to orderbook. There will be more to come as TenneT has ambitious plans to build 60GW of offshore wind capacities by 2030 (28GW awarded thus far) and 300GW by 2050. According to Upstream, Petrobras could issue an invitation to tender in 2H24 to contract a FPSO to revitalise a pair of mature fields in the country&rsquo s Campos basin. In addition, STM continues to actively pursue projects in particularly O& G production platforms, as well as HVDC and Wind Turbine Installation Vessels (WTIV) in renewable space. Stock fell c.15% followings news of MSCI deletion, before ragaining some grounds on the Petrobras FPSO order wins. While further selling pressure next few days prior to effective MSCI removal on 31 May, might be inevitable, it is unwarranted in our view given the intact fundamentals. We believe the massive FPSO contracts marked the bottoming out of the stock, providing the much-needed confidence booster. We maintain our confidence on Seatrium&rsquo s turnaround. Reiterate BUY and TP SGD3 (1.5x FY24 PB).

Its current net order book stands at S$25.8 billion

 

SEATRIUM : 5E2 +1.74% on Tuesday (May 28) said it obtained S$11.4 billion in order wins in the year-to-date, driven by contracts from Petrobras and Shell, among other clients.

 

These include the recently announced floating production storage and offloading vessel (FPSO) orders from the Brazilian national oil company and a Sparta floating production unit newbuild for Shell, the group said in its first quarter business update.

 

The group also won a topsides integration contract from Modec for the Errea Wittu FPSO and a topsides fabrication and integration contract from SBM Offshore for the Jaguar FPSO.

 

Seatrium&rsquo s current net order book stands at S$25.8 billion, comprising 31 projects with deliveries until 2030, excluding repair and upgrade projects.

 

Speaking to reporters and analysts on Tuesday to discuss the company&rsquo s latest business update, Seatrium CEO Chris Ong said the company is still actively bidding for projects in different verticals. 

 

While the focus recently has been on the company&rsquo s FPSO platforms, Ong said the company is looking more broadly at building franchises in its &ldquo one Seatrium&rdquo business model. 

 

While Seatrium still remains active in the FPSO space, the company&rsquo s business and commercial units are &ldquo actively in the market bidding for the contracts out there&rdquo , he said. 

 

&ldquo So (Seatrium&rsquo s deal) pipeline is still healthy,&rdquo Ong added. 

 

The FPSO production is active largely in countries like Brazil and Africa, but different countries require different types of solutions and construction focus, Ong said.

 

However, the company is not assuming that it will automatically land the next seven FPSO projects easily, given the &ldquo competitive environment&rdquo that the company is facing. 

 

All of such projects will go through a &ldquo very rigorous tendering process&rdquo , he said. 

 

Responding to a question on new tenders that Seatrium is targeting, Ong said the company sees opportunities in the US and Gulf of Mexico in terms of production, as the company&rsquo s clients are also starting to look at more developments. 

 

For the offshore wind space, Ong said the group continues to &ldquo chase&rdquo high voltage direct current projects and wind turbine installation vessels. 

 

For its repairs and upgrades segment, Seatrium clinched S$350 million in major contracts. It also obtained favoured customer contracts (FCC) from Solvang ASA for a carbon capture and storage retrofit and TMS Cardiff Gas for the repairs and upgrades of a fleet of 17 liquefied natural gas (LNG) carriers.

 

It also renewed a five-year FCC with GasLog LNG Services and Shell International Trading and Shipping Company (Stasco) to repair, refurbish and upgrade a combined fleet of 43 LNG carriers.

 

During the quarter, the group completed 67 repair and upgrade projects and delivered Brassavola, the first membrane LNG bunker vessel in Singapore.

 

It also obtained a S$400 million committed green revolving loan facility to support business growth in the offshore renewables space and completed the early redemption of S$500 million in floating rate bonds due 2026.

 

The group also established a S$100 million share buyback programme funded by existing cash. Other notable events include its 20-to-1 share consolidation exercise and the divestment of Batangas Yard in the Philippines.

 

In response to a query on whether the company booked a gain or loss on the divestment in the Philippines, Seatrium&rsquo s chief financial officer Adrian Teng said the sale was &ldquo positive&rdquo for the group. 

 

The group also announced a final settlement of US$68 million to resolve the interest payable and all outstanding issues arising from its arbitration commenced by MH Wirth in December 2021 against a wholly owned subsidiary. This amount will be booked in FY2024.

 

The offshore and marine group unveiled some targets in March that were criticised by markets for being too conservative. The group said then that it was aiming to hit earnings before interest, taxes, depreciation and amortisation (Ebitda) of more than S$1 billion by 2028, and a return on equity of more than 8 per cent by that time. 

 

Ong reiterated on Tuesday that there was no change in the company&rsquo s plan, and the management is &ldquo on target&rdquo in the execution of its medium-term and long-term strategy. 

 

&ldquo The key thing is to be consistent and to be resilient and to produce these results year on year. And it&rsquo s very easy to forget the very painful downturn that we have gone through for the past decade. So right now, our strategy is around resilience,&rdquo Ong added. 

 

In terms of what the company is doing to strengthen its Ebitda margin in H1 this year versus H2 last year, Ong said the company is working hard to garner a quality order book, and is also actively looking at trimming costs.