Seatrium (SGX:5E2) has finally reported its first full-year profit after 7 years. It has gone through so much, such as a fraud investigation, a merger, economic downturns and oil price crashes that affected its order book. Here we review if better days lie ahead for Seatrium.
Review of financial performance
Seatrium has posted a net profit of S$157 million for FY24, marking its first full-year profit since 2017, and a sharp reversal from a net loss of S$2.0 billion for FY23.
During the year, Seatrium continued to implement its cost optimisation and restructuring initiatives. Driven by revenue growth, reduced overheads, and divestment of non-core assets, EBITDA rose to S$627 million for FY24 from S$236 million for FY23.
Seatrium also reported an underlying net profit of S$200 million for FY24, a turnaround from an underlying net loss of S$28 million for FY23.
Revenue for FY24 grew 27% to S$9.2 billion, up from S$7.3 billion a year ago. Higher revenue was primarily driven by project execution and increased business activity in repairs and upgrades.
Reviewing of Seatrium’s key priorities
During its investor day in March 2024, Seatrium shared the following 4 key priorities. We review to understand if Seatrium has delivered on its key priorities.
(i) Implementing cost saving initiatives to drive a leaner cost structure
Seatrium announced a target to achieve recurring annualised savings of S$300 million through synergies and overhead reductions by end-2025. In the recent FY24 earnings release, Seatrium confirmed that it is on track to achieve this target within the timeframe.
Seatrium have also identified procurement savings of S$200 million from ongoing projects. Some of these savings have already been realised and Seatrium will achieve the remaining savings over time.
Key initiatives include standardised pricing with customers, reduction in overheads, asset rationalisation, improved supply chain management and better procurement efficiency.
(ii) Executing the order book safely, timely and on budget
Seatrium delivered seven projects during the year, including Singapore’s first newbuild membranetype liquefied natural gas bunker vessel. The Repairs and Upgrades business segment also saw strong activity with the Group completing 231 projects.
(iii) Securing new order wins and growing the pipeline
In 2020, Seatrium’s pre-merger orderbook stood at a mere S$1.82 billion. The net order book presently stands at S$23.2 billion, up from S$16.2 billion in the previous period. The order book now comprises 27 projects with deliveries till 2031, providing long-term revenue visibility for the years ahead.
(iv) Proactive capital management to improve shareholder return and sustain a strong balance sheet
Seatrium’s net debt stood at S$689 million, a reduction from last year’s S$747 million, representing an 8% reduction through progressive and active repayment of loans, offset by increased working capital project needs.
Seatrium’s net leverage ratio was 1.1x as at end-2024, down from 3.2x as at end-2023.
In view of the return to profitability, Seatrium is proposing a dividend of 1.5 cents per share, amounting to a total dividend of S$51 million. We think this dividend is intended by Seatrium to assuage shareholders that it has a continued focus on generating shareholder returns, while maintaining a prudent approach to capital management.
Finally – Seatrium has turned its ship around
Seatrium used to be viewed solely as just an oil & gas play. However, it has since pivoted successfully to renewables. Seatrium now has three focal points, namely oil & gas, renewables, as well as maritime repair and upgrades.
Seatrium noted that the need to address energy security amid the global transition towards cleaner energy is likely to present significant market opportunities, despite geopolitical volatility in the near term.
Looking ahead, it aims to continue to seek profitable growth in oil and gas, offshore wind, repairs and upgrades, as well as new energy solutions.
Currently, about two-thirds of the world’s jack-up rigs are Seatrium’s designs and Seatrium has opened a new office in Al Khobar, Saudi Arabia to provide equipment, design, and aftersales capabilities for the drilling rig market.
Beyond that, Seatrium also has shipyard assets in Texas, USA and could see some order wins from the US’s push to move some manufacturing back into the country, despite the investment required and its complexities. Seatrium has a proven track record, having previously delivered a Jones-act compliant Wind Turbine Installation Vessel. The Jones Act requires that all vessels transporting goods within the United States must be USA-documented, owned, crewed, and built, making Seatrium’s experience highly valuable.
With its latest results, Seatrium has now shown that it can deliver on all 4 of its key priorities and deliver value to its long-suffering shareholders.
We have voiced our concerns multiple times about the long-term nature of Seatrium’s projects, which subject investors to tail-end risks. This is the nature of the industry and these operational risks are a feature not a bug. However, we note that the key initiatives mentioned above to drive cost-savings would also increase Seatrium’s control over the cost aspect of these tail end risks. Given these developments, we think better days are definitely ahead for Seatrium.
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