Order wins to drive turnaround in FY24F
- 9M23 orderbook stood at S$17.7bn, down from S$19.7bn in 1H23, as there were no new order wins in 3Q23. STM completed 4 deliveries (YTD: 8).
- One of two Empire Wind offshore substations, originally slated for 2026 delivery, is seeing delays. STM does not expect a major impact on margins.
- Reiterate Add with a TP of S$0.19, based on 1.5x CY24F P/BV.
No new order wins during 3Q23…
Seatrium’s (STM) orderbook fell to S$17.7bn at end-3Q23 from S$19.7bn at end-1H23. No new order contracts were signed, implying its order wins YTD stand unchanged at S$4.3bn from end-1H23. Orderbook (OB) comprises of 33 projects with delivery schedules up to 2023. 73 vessels underwent repairs and upgrades (RU) in 3Q23 (YTD23: 217). Apart from work on energy transition-driven project upgrades, STM highlighted active RU enquiries for jackups, with even some preliminary enquiries for newbuild jackups. Management plans to use the S$968m receivables prepaid by Borr Drilling for technology investments. Net gearing ratio improved to 0.15x at end-3Q23 vs. 0.17x as of end-1H23. Further details on capital structure, asset holdings and STM’s future growth plans will be provided at its Capital Markets Day to be held within 1H24.
…but key projects are in the pipeline.
As noted on 28 Aug 2023, STM was awarded a letter of intent (LOI) by Shell for construction work on its Sparta floating production unit (FPU), which we expect to be worth c.S$300m-400m. STM is awaiting a final investment decision (FID) from project partners Shell and Equinor. Management also noted that the bid for Petrobras’s P-84/85 FPSOs is still undergoing technical clarification, with the next step being price negotiation (STM is likely to win 1 order here, according to Upstream). It is also actively engaging with TenneT for its next round of German projects for 2024. We continue to expect FY23F order wins of
c.S$7.1bn.
Offshore wind exposure
Management does not foresee issues with its construction work on Orsted’s 600MW Changhua offshore substation, which began in Aug 2023 and is due for delivery in 2025. However, 2026 delivery for 1 of 2 Empire Wind offshore substations, for Equinor and BP’s JV project to be deployed in US’s East Coast, has been pushed out to beyond 2026 (no definitive new delivery date was provided). Costs committed to date have been low, and the new timeline is not likely to impact project margins, according to management. Recall that these contracts are together worth c.S$500m, or c. 2.8% of STM’s total orderbook.
Reiterate Add with unchanged TP of S$0.19
We reiterate Add given the expected strong turnaround in profitability in FY24F. Our TP of S$0.19 is based on 1.5x CY24F P/BV (average trading range from Jan 2015 to May 2023). Re-rating catalysts: sizeable order wins, faster-than-expected return to profitability, stronger-than-expected margins. Downside risks: cost overruns in projects delaying turnaround in profits and order cancellations.
