• There's a big-cap stock on the Singapore Exchange which is recognised as possessing world-class engineering capabilities for the offshore sector. It's the S$8.7-billion market capped Seatrium formed from the merger in 2023 of Sembcorp Marine and Keppel Offshore & Marine.

• This year is expected to be the merged entity's third successive year of losses: S$1.2 billion, S$260 million and S$270 million in that order. 

man question mark 1• And next year? UOB Kay Hian is expecting S$158 million in net profit. A turnaround story? Looks like it but ... on valuation grounds, it's difficult to understand why investors would want to buy the stock trading at 54X next year's earnings. 

• It's even more perplexing that the broker is setting a price target that's 48% higher than where the stock is. Maybe there's something we are missing, so you might want to read excerpts of UOB KH's report below and even the full one in the link below. 



Excerpts from UOB KH report

Analyst: Adrian Loh

VALUATION/RECOMMENDATION

• We maintain our BUY rating on Seatrium with a P/B-based target price of S$0.19.

Our target P/B multiple of 1.5x is 2SD above the company’s five-year average of 1.0x and is pegged to its 2024 book value of S$0.125.

Given the company’s exposure to the offshore marine upcycle, we strongly believe that Seatrium’s current P/B valuation is inexpensive.

Risks include higher-than-expected provisions for 2023, negative news flow regarding its CPIB case and volatile oil prices.



• Maintain sector view at OVERWEIGHT. We continue to like Seatrium as we believe that the company will benefit from stronger offshore marine dynamics as well as demand for offshore vessels and structures related to the renewables industry.

In addition, the normalisation of economic activity should result in a greater volume of shipping activities thus positively impacting its repairs/upgrades segment.

While 40% of Seatrium’s current orderbook is in the renewable energy space (with the remainder related to oil and gas projects), its addressable market is arguably much larger when taking into account carbon capture usage and storage, floating LNG, and ammonia storage and transport which feeds into the hydrogen energy chain.

SHARE PRICE CATALYST
• New orders for rigs, offshore renewable installations or fabrication works as well as repairs and upgrade works for cruise ships and other commercial vessels.

Full report here. 

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