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Citi cuts Seatrium’s adjusted profit forecasts, lowers TP to $1.96 after new investigations into Operation Car Wash

Felicia Tan
Felicia Tan • 2 min read
Citi cuts Seatrium’s adjusted profit forecasts, lowers TP to $1.96 after new investigations into Operation Car Wash
Seatrium's solar panels at its Tuas yard. Photo: Seatrium
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Citi Research analyst Luis Hilado has cut his adjusted profit forecasts for Seatrium after the group revealed new investigations into Operation Car Wash.

On June 15, Seatrium announced that the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) are conducting a joint investigation into the offences potentially committed by the group and its officers in connection with Operation Car Wash.

This is in addition to Seatrium already providing for the net penalty of US$57 million ($76 million) for a deferred prosecution agreement (DPA)

In his June 18 report, Hilado lowered his forecasts by 4%, 26% and 18% over his estimates for FY2024, FY2025 and FY2026 respectively.

“This differs our expectations of over $1 billion in ebitda to FY2026 (versus FY2025 previously),” he writes.

On March 15, Seatrium announced that it aims to grow its ebitda by four times to over $1 billion by FY2028. The group also targets to deliver a return on equity (ROE) of over 8% by then.

See also: RHB increases UOB’s TP to $32 following meeting with bank’s management

At the same time, Hilado has lowered his revenue forecasts for FY2025 and FY2026 by 2% and 2% respectively. This comes as the analyst estimates that the recent contract wins from Petrobras and TenneT are likely to ramp to peak revenue levels into the mid- to later parts of the five- to seven-year contract tenor.

Hilado has also “tempered” his assumptions for any margin improvements for FY2024 onwards to reflect the delay in the positive impact of the new contracts.

“Even without further penalty, we believe the Bloomberg consensus forecasts on reported profit have yet to factor fully for US$68million [or] $92 million in arbitration related interest charges,” he writes.

See also: Citi lowers Sea’s TP to US$80 as it sees competition to intensify in 2H2024

Following the lowered profit forecasts, Hilado has also lowered his target price estimate to $1.96 from $2.16 as he believes that Seatrium’s shares will trade at a further discount due to the potential risk of further financial penalties. Hilado’s target price is based on 1 times P/B or at a 20% discount to Seatrium’s peers.

The analyst has, however, retained his “buy” call. Hilado upgraded Seatrium to “buy” on May 27 after the group secured $11 billion worth of contracts from Petróleo Brasileiro S.A. (Petrobras), Brazil’s national oil company.

In a June 18 update, the team at DBS Group Research notes that shares in Seatrium are likely to react negatively to the news of the joint investigation. It sees near-term support for Seatrium’s shares at $1.58.

Shares in Seatrium closed 16 cents lower or 9.58% down at $1.51 on June 18.

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