- Termination of Empire Wind 2 project will remove over S$250m or <1.5% from orderbook, which is relatively small
- It is not expected to have material financial impact as construction work was only expected to start in Jun-2024 and other existing projects will fill the production slot
- Empire Wind 1 project that started work in 4Q23 will carry on as planned with progressive payment milestones, as guided during 3Q23 business update
- Longer-term prospect of offshore wind remains constructive; Reiterate BUY and TP S$0.18
What has happened?
Seatrium (STM) announced that the Empire Wind 2 project worth over S$250m has been cancelled by customer Empire Offshore Wind LLC (JV between Equinor and BP). This is one of the two 1,260MW Offshore Substation Platform projects awarded to STM in May-2023. The not-so-good development comes on the back of cost and supply chain disruption issues that plagued some US offshore wind projects that resulted in write-downs / project termination. Management has guided during 3Q23 business update that they are discussing with customer on the viability of this project and hence shall not be a big negative surprise. Furthermore, share price has already been impacted post negative newsflow on US Offshore Wind since Aug-2023.
While this is certainly not a good news, we take comfort in the fact that contract value is relatively small, accounting for <1.5% of orderbook. The construction work for the unit has yet started and thus not incurring much cost except some initial engineering works. Other existing projects in the pipeline will fill the freed up slot. More importantly, the Empire Wind 1 that started work in 4Q23 will carry on as planned with progressive payments.
Based on current assessment, we believe current ongoing projects are at low risk of cancellation. The other major offshore wind contracts from TenneT (~S$3.3bn), which is a grid operator, is rather secure. We believe the longer-term prospects for Offshore Wind remains constructive. We continue to like STM for its turnaround story. Reiterate BUY and TP S$0.18 (1.5x PB)
Project Pipelines as of end 3Q23
*Excluded Empire Wind 2 project that has been terminated from deliveries in 2027 onwards