Seatrium wins major contract – is this the turnaround?

Record order book size of S$25.8 billion

Seatrium (SGX:5E2) has won an order amounting to S$11 billion from Petrobras for two Floating Production Storage and Offloading vessels (FPSO) platforms. Petrobras is the major shareholder and operator of these two FPSOs. Minority shareholders with stakes in these FPSOs include Shell and TotalEnergies for one platform, and Petronas, Qatar Energy and TotalEnergies for the second platform.

These high-throughput FPSOs will be deployed in the Atapu and Sépia fields, located in the eastern part of the Santos Basin, approximately 200 kilometres offshore of Rio de Janeiro in Brazil.

Seatrium’s facilities in Brazil, China, and Singapore will manufacture the modules, weighing 60,000 metric tonnes, with the outsourced hull and accommodation transported to Singapore for topside module integration and commissioning. After successful integration and commissioning in Singapore, the FPSO platforms will be towed to the Atapu and Sépia fields for offshore commissioning. 

This brings Seatrium total FPSO orderbook with Petrobras to 6 newbuilds and total net order book to $25.8 billion, comprising 31 projects with deliveries until year 2030.

The net contract value that would be fulfilled in the following years are in the table below. This value does not include repair and upgrade works.

Recap – FY23 performance

Seatrium recorded S$7.3 billion in revenue, tripling from FY22. EBITDA was S$236 million, compared to a loss of S$7 million in FY22. Excluding exceptional items such as write-downs, provisions, legal claims and settlements, and merger expenses, EBITDA would have been S$628 million in FY23 as compared to S$113 million for FY22.

Seatrium recorded a net loss of S$2.0 billion in FY23 due to these exceptional items. Excluding these items, net loss would have been S$28 million.

1Q24 Business update

In 1QFY24, Seatrium successfully delivered Singapore’s first Membrane LNG Bunker Vessel to one of its long term customers MOL, and completed repairs & upgrades for 67 vessels. It also secured the world’s first full scale turnkey carbon capture and storage retrofit project.

To optimise its borrowing cost and debt profile and to further align interest and deliver shareholder value, Seatrium completed an early redemption of $500m of its bonds that were due in 2026 and put in place $400 million of revolving credit facilities.

As of FY23, Seatrium had cash of $2.3 billion and borrowings of $3 billion. Seatrium is taking steps to pay off borrowings and reduce interest cost and at the same time keeping a line available to draw down additional funds when required.

With the share price near all-time lows, Seatrium currently trades at about 1.0x book value. Seatrium has also established a S$100 million Share Buyback Programme which should deliver accretion to shareholders.

Seatrium also divested a non-core Shipyard asset in Batangas, Philipines which was part of the Keppel portfolio. This was part of a strategic review where surplus and non-core assets were identified.

Most importantly, it increased its net order book size significantly, as mentioned above.

Finally, Seatrium also settled with the Brazilian Authorities and made provisions as part of the settlement. Seatrium also entered into an agreement with the Singapore authorities and although this matter remains subject to the approval of the High Court of Singapore, this should largely mark an end to the matter.

Is this the turnaround?

Seatrium held its Investor Day in March, where it unveiled its long-term sustainable targets of at least S$1 billion or more in EBITDA, a ROE of 8% or higher, and net leverage of 2 to 3 times or lower, on a through cycle basis, by FY2028 or earlier. 

The macro environment is likely of a favourable one for Seatrium. Oil prices remain elevated due to tensions across the world. Periods of low oil prices and the pandemic led to a period of under investment by the major energy players and capital expenditure is coming back as a result of strong profits in the recent years.

Seatrium is today the only global offshore and marine engineering group that provides end-to-end delivery of projects in key markets, including Brazil.

However, Seatrium has gone through a long and massive upheaval. It has faced issues such as bribery investigations, multiple substantial loss provisions from long term contracts, restructuring and a merger. The list goes on.

In the current financial year, Seatrium is focused on delivering an improved financial performance. The 4 key priorities include:

(i) implementing cost saving initiatives to drive a leaner cost structure;

(ii) executing the order book safely, timely and on budget;

(iii) securing new order wins and growing the pipeline; and

(iv) proactive capital management to improve shareholder return and sustain a strong balance sheet. 

These priorities are fundamental to the company and are seen as focusing on delivering the basics.

As the saying goes – Once bitten twice shy. At this point in time, similar to previous post here and here, we are still unsure that this is the point that Seatrium would turn around and would like to see actual results as the long-term nature of projects subject investors to tail-end risks.

Seatrium has successfully taken a large step forward with a sizeable order book win. Seatrium should now show that it can deliver on all of its key priorities and deliver value to its long-suffering shareholders.

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