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OCBC's Lim trims Seatrium's fair value to 15.5 cents following DPA but keeps 'buy' call

The Edge Singapore
The Edge Singapore  • 2 min read
OCBC's Lim trims Seatrium's fair value to 15.5 cents following DPA but keeps 'buy' call
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OCBC Investment Research's Ada Lim has kept her "buy" call on Seatrium after the company said it is finalising a deferred prosecution agreement (DPA) with Singapore authorities by paying $76.5 million.

The money is to settle a long-running bribery case in Brazil, better known as "Operation Car Wash", involving Sembcorp Marine before it merged with Keppel's offshore and marine unit.

By doing so, Seatrium is seen to have finally put to rest a multi-year overhang on its share price, even as it grapples with the industry cycles.

In its revised FY2023 income statement following the DPA, Seatrium has reported a loss of $2.03 billion for the year ended Dec 31 2023 instead of $1.95 billion reported earlier, a large chunk of which can be attributed to impairment and provisions. 

After factoring in the DPA, Seatrium's NAV will be slightly trimmed by 1.2%.

In her April 1 note, Lim says that Seatrium’s share price has underperformed year-to-date, following an order cancellation and "substantial kitchen-sinking" in its FY2023 numbers.,

See also: CGS International increases Yangzijiang Shipbuilding TP to $2.35, ups order book win target to US$5.5 bil

"We see the announcement as a positive development that lifts the overhang on the stock, though share price may continue to trade sideways in the near term," says Lim.

At the coming AGM, Seatrium shareholders will be asked to approve a 20-to-1 share consolidation, which Lim believes can help reduce some share price volatility. 

In her view, the company's coming 1HFY2024 results may be an "important signpost" for investors to gauge the management’s ability to execute and secure new orders at reasonable gross margins. 

See also: RHB maintains ‘neutral’ on Japan Foods Holdings at lowered target price of 26 cents

Lim's new fair value estimate is now 15.5 cents, down from 16 cents, to factor in the adjustment to NAV following the DPA.

As at 10.40 am, Seatrium shares changed hands at 8.6 cents, down 1.15%.

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