Seatrium Earnings: Results Below Expectations Due to One-Off Items; Long-Term Outlook Unchanged

While Seatrium’s first-half 2024 net profit of SGD 36 million is a positive compared with net loss of SGD 264 million a year ago, this is below our expectation due to one-off items such as provisions for onerous contracts and the settlement with MH Wirth. Net interest expense is also higher than expected, as the firm has raised borrowings to support working capital for its rising order book. We have pushed back our margin recovery assumptions for Seatrium and cut our 2024-26 earnings forecasts by 28-37%. Consequently, we reduce our fair value estimate to SGD 2.66 from SGD 3.00. The magnitude of the cut is less than the near-term earnings revisions, as our long-term estimate remains largely unchanged, with 2028 net profit only lowered by 2%. We think Seatrium remains undervalued, with more than 50% upside. We believe the outlook for the offshore industry remains positive and investors should accumulate the shares to take advantage of the near-term share price weakness. The ongoing share buyback program should also provide support to its share price. The new Singapore regulatory investigation, started in June regarding Operation Car Wash in Brazil, is still underway. We have not factored in additional provisions.