UOB Kay Hian (UOBKH) analyst Adrian Loh has kept “buy” on Seatrium with a lower target price of $2.35 from $3.23 previously, expecting the share price to remain volatile in the near term.
Since Seatrium’s 1QFY2024 ended March business update on May 28, the company had announced positive newsflow. This includes the award of letter of intent (LOI) by BP Exploration & Production (BP) for a deepwater production unit; the confirmation of a third EUR2 billion offshore renewables contract with TenneT; settlement of arbitration proceeding proceedings with Awilco and RogCo; as well as the start of its share buyback programme.
Unfortunately, the negative news regarding Seatrium’s deletion from the MSCI Singapore Index and an Operation Car Wash investigation by the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) of Singapore has overshadowed the good news, Loh points out.
“We were surprised by the revelation of yet another investigation by the Singapore authorities and believe that the market and the company itself were blindsided by this announcement, believing that the prior settlement agreement with the Brazilian authorities and completion of investigations by Singapore’s Attorney-General’s Chambers and Corrupt Practices Investigation Bureau (CPIB) had drawn a line in the sand,” says Loh.
In UOBKH’s view, Seatrium’s LOI for Kaskida’s engineering, procurement, construction and commissioning (EPCC) contract puts it in a very strong position to clinch the BP’s Tiber and Gila production units — the two other BP large deepwater discoveries in the Gulf of Mexico (GoM).
A single yard winning all the production assets is not unprecedented, says Loh. “Note that Seatrium won Shell’s trio of deepwater production assets in the GoM, namely Whale, Vito and Sparta. At present, we estimate the Kaskida EPCC to be worth $500 million to $600 million.
UOBKH continues to like Seatrium, expecting the company to benefit from stronger offshore marine dynamics as well as demand for offshore vessels and structures related to the renewables industry.
Additionally, the normalisation of economic activity should result in a greater volume of shipping activities, thus positively impacting its repairs and upgrades segment, says Loh.
“While 40% of Seatrium’s current orderbook is in the renewable energy space, its addressable market is arguably much larger when taking into account carbon capture usage and storage; floating liquefied natural gas; and ammonia storage and transport, which feeds into the hydrogen energy chain,” he notes.
As at 2.59pm, shares in Seatrium are trading 1 cent lower or 0.7% down at $1.38.
