Key Insights

• 
  
  Seatrium' s estimated fair value is S$4.56 based on 2 Stage Free Cash Flow to Equity
• 
  
  Seatrium' s S$2.29 share price signals that it might be 50% undervalued
• 
  
  The S$2.81 analyst price target for 5E2  is 38% less than our estimate of fair value

Today we will run through one way of estimating the intrinsic value of Seatrium Limited (SGX:5E2) by taking the expected future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won' t be able to understand it, just read on! It' s actually much less complex than you' d imagine.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the  Simply Wall St analysis model.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Step By Step Through The Calculation

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company' s cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren' t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today' s value:

10-year free cash flow (FCF) estimate

(" Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF)  = S$6.4b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.5%. We discount the terminal cash flows to today' s value at a cost of equity of 8.0%.

Terminal Value (TV)= FCF2035  × (1 + g) ÷ (r &ndash g) = S$1.1b× (1 + 2.5%) ÷ (8.0%&ndash 2.5%) = S$20b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= S$20b÷ ( 1 + 8.0%)10= S$9.0b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is S$15b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of S$2.3, the company appears quite good value at a 50% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. SGX:5E2 Discounted Cash Flow January 13th 2026

Important Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don' t have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company' s future capital requirements, so it does not give a full picture of a company' s potential performance. Given that we are looking at Seatrium as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we' ve used 8.0%, which is based on a levered beta of 1.324. Beta is a measure of a stock' s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

View our latest analysis for Seatrium 

SWOT Analysis for Seatrium

Strength

• 
  
  Debt is not viewed as a risk.

Weakness

• 
  
  Dividend is low compared to the top 25% of dividend payers in the Machinery market.

Opportunity

• 
  
  Annual earnings are forecast to grow faster than the Singaporean market.

• 
  
  Trading below our estimate of fair value by more than 20%.

Threat

• 
  
  Annual revenue is expected to decline over the next 4 years.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn' t be the only metric you look at when researching a company. It' s not possible to obtain a foolproof valuation with a DCF model. Preferably you' d apply different cases and assumptions and see how they would impact the company' s valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For Seatrium, we' ve put together three pertinent factors you should consider:

1. 
   
   Financial Health: Does 5E2 have a healthy balance sheet? Take a look at our  free balance sheet analysis with six simple checks  on key factors like leverage and risk.
2. 
   
   Future Earnings: How does 5E2' s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our  free analyst growth expectation chart.
3. 
   
   Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore  our interactive list of stocks with solid business fundamentals  to see if there are other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock just  search here.

Have feedback on this article? Concerned about the content?  Get in touch  with us directly.  Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature.  We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice.  It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Key Insights

• 
  
  Seatrium' s estimated fair value is S$4.56 based on 2 Stage Free Cash Flow to Equity
• 
  
  Seatrium' s S$2.29 share price signals that it might be 50% undervalued
• 
  
  The S$2.81 analyst price target for 5E2  is 38% less than our estimate of fair value

Today we will run through one way of estimating the intrinsic value of Seatrium Limited (SGX:5E2) by taking the expected future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won' t be able to understand it, just read on! It' s actually much less complex than you' d imagine.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the  Simply Wall St analysis model.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Step By Step Through The Calculation

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company' s cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren' t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today' s value:

10-year free cash flow (FCF) estimate

(" Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF)  = S$6.4b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.5%. We discount the terminal cash flows to today' s value at a cost of equity of 8.0%.

Terminal Value (TV)= FCF2035  × (1 + g) ÷ (r &ndash g) = S$1.1b× (1 + 2.5%) ÷ (8.0%&ndash 2.5%) = S$20b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= S$20b÷ ( 1 + 8.0%)10= S$9.0b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is S$15b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of S$2.3, the company appears quite good value at a 50% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. SGX:5E2 Discounted Cash Flow January 13th 2026

Important Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don' t have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company' s future capital requirements, so it does not give a full picture of a company' s potential performance. Given that we are looking at Seatrium as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we' ve used 8.0%, which is based on a levered beta of 1.324. Beta is a measure of a stock' s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

View our latest analysis for Seatrium 

SWOT Analysis for Seatrium

Strength

• 
  
  Debt is not viewed as a risk.

Weakness

• 
  
  Dividend is low compared to the top 25% of dividend payers in the Machinery market.

Opportunity

• 
  
  Annual earnings are forecast to grow faster than the Singaporean market.

• 
  
  Trading below our estimate of fair value by more than 20%.

Threat

• 
  
  Annual revenue is expected to decline over the next 4 years.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn' t be the only metric you look at when researching a company. It' s not possible to obtain a foolproof valuation with a DCF model. Preferably you' d apply different cases and assumptions and see how they would impact the company' s valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For Seatrium, we' ve put together three pertinent factors you should consider:

1. 
   
   Financial Health: Does 5E2 have a healthy balance sheet? Take a look at our  free balance sheet analysis with six simple checks  on key factors like leverage and risk.
2. 
   
   Future Earnings: How does 5E2' s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our  free analyst growth expectation chart.
3. 
   
   Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore  our interactive list of stocks with solid business fundamentals  to see if there are other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock just  search here.

Have feedback on this article? Concerned about the content?  Get in touch  with us directly.  Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature.  We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice.  It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.