DBS Group Research, in its May 8 note, has reiterated its ‘buy’ call and 14 cents target price on Seatrium , ahead of its 1QFY2023 business update on May 12.
The company, previously called Sembcorp Marine, has built a growing order momentum in the renewable energy space that has hit $5.3 billion year to date, reaching a total of more than $22 billion thus far.
Most recently, on May 5, Seatrium announced it has won a $500 million contract to build two offshore wind farm substations from a JV between Equinor and BP.
Seatrium is already working on three 2GW high voltage direct current offshore converter platform projects for offshore wind farm projects in the Netherlands secured at end March 2023.
Other key wind energy projects in progress include a 1.4GW HVDC offshore converter platform for the Sofia Offshore Wind Farm for UK North Sea operation, a HVDC offshore converter platform and an onshore converter station for the DolWin 5 Offshore Wind Farm in the German North Sea.
Another on-going project is to build two 440MW wind farm substation projects in the US, and a 600MW offshore wind farm offshore substation platform in Taiwan
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In addition, Seatrium is working on a next-generation wind turbine installation vessel newbuild for Maersk Supply Service, as well as the engineering, procurement and construction of a WTIV newbuild for Dominion Energy.
Earlier, Seatrium has already delivered several offshore wind farm projects at locations ranging from the North Sea to Taiwan.
The current order book gives Seatrium revenue visibility for the coming three years, with both conventional and renewable energy contracts.
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“We have turned more positive on order wins ahead with industry datapoints suggesting optimism in project final investment decisions for both conventional energy and renewable solutions,” states DBS.
DBS notes that after it reinstated coverage on the stock on March 30, Seatrium’s share price has gained around 25%.
“We will look to review our assumptions and 14 cents target price, based on 1.2x book value following the 1Q23 business update,” says DBS.
CGS-CIMB analysts have similarly maintained "add" call, with a more optimistic target price of 19 cents, which is pegged to 1.5x book value.
"A sizeable order book could be the key driver for Seatrium’s share price, although the group could incur integration costs/losses over the next one year," write Lim Siew Khee and Izabella Tan in their May 5 note.
There's another potential big order round the corner. According to industry publication Upstream, Seatrium and Altera Infrastructure are front runners to clinch the US$2 billion Australian FPSO for Dorado project, which will be up for re-tender in 2H23.
They warn that downside risks include order cancellations, thereby impacting earnings, as well as the likely sale of share by Keppel Corp BN4 in the open market.
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As part of the merger between Keppel Offshore and Marine and Sembmarine, Keppel Corp ended up with stake that is now believed to be less than 5% stake in Seatrium.
As this is no longer deemed a substantial shareholding, Keppel Corp is not obliged to announce its selling tempo.
Seatrium shares closed May 8 at 13 cents, down 0.77% for the day and down 7.86% year to date.
