Seatrium’s $11 Billion New Order Wins from Petrobras: What Investors Need to Know

May 31, 2024

Seatrium Ltd (SGX: 5E2) has been on a positive gain and is featured as one of our stocks with momentum for this week, underpinned by bullish technical signals. On Saturday, Seatrium announced a monumental $11 billion in new orders from Petrobras, a testament to its strong and enduring partnership with the oil giant. This major win has not only fortified Seatrium’s order book but also significantly boosted its share price, reflecting heightened investor confidence in the company’s prospects.

3 Key Insights for Investors

  • Higher order book could drive revenue growth in 2024

Seatrium’s order book as of the first quarter of 2024 stood at S$25.8 billion, a significant 59% increase from the previous fiscal year. The year-to-date orders total S$11.4 billion, which includes the massive S$11 billion order from Petrobras. Despite this large order book, the implied turnover for 1Q24 was around S$2 billion, slightly lower than the forecasted S$2.2 billion due to the timing of project completions. However, the pace is expected to pick up in subsequent quarters as management is confident that these contracts are on track for delivery in 2024.

  • Strategic asset management

Seatrium continued its strategy of rationalizing assets with the divestment of the Philippines Batanga yard in the first quarter of 2024, which is expected to have a slight positive impact on their financials.

  • Busy order pipeline for Seatrium to work towards

There is an active and busy order pipeline with Seatrium working towards closing a significant contract for TenneT’s third 2-GW HVDC electrical transmission system by June 2024, potentially worth around S$1.8 billion. The company is optimistic about its offshore wind segment and expects more HVDC contracts by the end of 2024 to early 2025. Furthermore, Seatrium is bidding for additional projects, including floating production units and wind turbine installation vessels.

3 Key Reasons to Consider Seatrium

  1. Substantial Increase in Order Book: The latest $11 billion order win from Petrobras significantly bolsters Seatrium’s order book, promising sustained revenue growth and enhanced financial stability.
  2. Proven Industry Leadership: Seatrium’s ability to secure large-scale projects from major industry players like Petrobras underscores its market leadership and operational excellence.
  3. Expansion into Renewable Energy: Seatrium is actively expanding into new markets, including offshore wind energy, which diversifies its revenue streams and aligns with global energy transition trends.

Target Price

Following the recent order win, we have reaffirmed our target price of S$2.62 for Seatrium shares, indicating a potential upside of 45.6% from the current price of S$1.80. This target reflects a price-to-book value (P/BV) ratio of 1.5 times for 2024, highlighting the company’s robust asset base and earnings potential.

Key Risks

  1. Market Fluctuations: Despite the current positive outlook, the offshore and marine industries are highly susceptible to global economic shifts and fluctuations in oil prices, which could impact project feasibility and profitability.
  2. Execution Challenges: The scale of the newly won projects could bring about operational challenges, including potential delays and cost overruns, which may affect Seatrium’s profit margins.
  3. Regulatory Hurdles: As a global entity, Seatrium faces complex regulatory environments that could impose additional operational costs and affect project timelines.

Compelling Investment Opportunity For Investors

Investors are encouraged to consider the enhanced prospects of Seatrium, particularly following its significant new order wins. Those interested in the energy and marine sectors should see Seatrium as a compelling investment opportunity. It is advisable for potential investors to discuss with their financial advisors how best to integrate Seatrium into their portfolios, taking into account both the growth opportunities and the associated risks.

Company Overview

Seatrium is the merger between Sembcorp Marine and Keppel Offshore & Marine, two titans in the marine and offshore engineering industry. Headquartered in Singapore, the group boasts a 60-year of track record in designing and constructing rigs, floaters, offshore platforms, and specialized vessels, as well as in repairing, upgrading, and conversion of various ship types. Seatrium operates shipyards, engineering and technology centers, and facilities across Singapore, Brazil, China, India, Indonesia, Japan, Malaysia, the Philippines, Norway, the United Arab Emirates, the United Kingdom and the United States.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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