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'Scrubbed clean' Seatrium unshackles surplus assets and puts Operation Car Wash behind

The Edge Singapore
The Edge Singapore • 4 min read
'Scrubbed clean' Seatrium unshackles surplus assets and puts Operation Car Wash behind
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 Seatrium’s massive writedown in its earnings report for FY2023 ended December has prompted analysts to cut their book value-based target prices. However, they share the management’s optimism that henceforth, the company is better-poised to capture the growing business of energy transition.

Part of the total $2 billion in impairment for surplus assets and provisions was a $182.4 million “leniency agreement” with Brazil to conclude a massive long-running corruption probe dubbed Operation Car Wash. Chris Ong, Seatrium’s CEO, explains that besides removing any criminal liability, the agreement means the company can continue to bid for new projects in Brazil. 

Specifically, the company is in “commercial negotiations” with its old customer Petrobras for two rigs estimated by some analysts to be worth $4 billion each: P84 and P85. “This is the least disruptive path forward for our business in Brazil, which is a very critical market where we have big ambitions,” says Ong.

\However, Seatrium cautions that a separate but related probe by the Singapore authorities has not been deemed concluded. Ong declines to say more, other than that the company is cooperating with the investigations.

‘Opportunity in energy trilemma’
Nonetheless, analysts like what they see. While Seatrium ended FY2023 with $1.94 billion in the red, the company has started showing earnings in the half-year ended December, albeit a minimal $33 million. “We are hopeful of operational improvements and a bright outlook for order wins, in both the conventional energy and renewables spaces,” says Ho Pei Hwa of DBS Group Research, who has kept her “buy” call but with a reduced target price of 15 cents from 18 cents.

Her target price, based on 1.5x book value, could see re-rating partly from earnings turnaround, and also from an uplift in the valuation multiple from 0.9x P/B now towards 1.5x P/B, on the back of the robust order momentum, integration synergies and solid management execution.

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For Lim Siew Khee of CGS International, with the latest developments in Brazil, Seatrium has been “scrubbed clean” and an overhang removed. “We believe there could be a final settlement upon finalisation. However, we believe the amount could be less than the Brazil settlement,” says Lim, referring to the probe in Singapore.

Lim expects the company to extract better operating margins along with the growing order book, putting it on a clearer path to profitability. Lim maintains her “add” call, but with a lower target price of 14 cents from 16.4 cents, based on 1.4x book value. 

However, when asked at the briefing on Feb 26 if FY2024 will be the year the company finally turns profitable, Ong declines to be drawn into making a forecast. “The business continues to be well-supported by industry to win orders arising from global energy transition and energy security,” he says.

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He is also not saying if there will be further impairments for this current FY2024, but maintains that the writedowns taken so far are based on “a very thorough strategic review”. The company is holding an investors’ day on March 15 to give more details on the way forward.

At the upcoming AGM, likely in April, Seatrium shareholders will be asked to approve a 20-to-1 share base consolidation, which, according to Ong, will help lift Seatrium from a penny stock status, which bars some institutional investors from trading in the shares.

Beyond this “kitchen sink” year, Ong believes that the company is well-positioned to capture the growth of the offshore and marine industry, which sits squarely on the ongoing energy transition and energy security trends.

Besides the traditional oil and gas exploration and production portion, increasingly, there is demand from the renewable energy portion such as wind farms. “We are actively working on multiple tenders to build on our order book. But most importantly, as we have always advocated, it is the quality of the order book and the discipline around it to make sure that we can execute it,” says Ong, alluding to the order book of some $16.2 billion.

“The energy trilemma is a business opportunity,” says Ong, referring to the need to balance among reliability, affordability and sustainability. “We see sustainability as a business. It is our business, not just a commercial business.” 

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