<Results Analysis> Kitchen sinking in 2H23
- Seatrium reported huge net loss of S$1.7bn in 2H23 due to S$1.4bn non-cash write-down and S$0.3bn provisions for onerous contracts and Brazil settlement
- However, operationally, the group managed to return to black with S$33m net profit in 2H23, their first interim profits since 2018
- Knee-jerk reactions post results should mark the bottom of share price with the removal of these key overhangs/uncertainties on write-downs and Brazil corruption case; Recommendation and TP under review
What has happened:
Seatrium (STM) reported net loss of S$1.7bn for 2H23, bringing full year loss to S$1.94bn. This is much bigger than expectations of S$500-600m for FY23 due to massive non-cash write downs of S$1.4bn for non-core assets and obsolete inventories arising strategic review; and S$0.6bn of provisions for onerous contracts, legal and corporate claims (largely the Brazil in-principle settlement) and merger expenses. If we strip out the huge one-offs, core operation achieved net profit of S$33m in 2H23 (partly aided by forex gains), its first interim profit since 2018, from small loss in 1H23.
Our view:
While kitchen-sinking was much steeper than expected, we are encouraged to see the turnaround of core profits in 2H23. Together with the results, the group also announced the unexpected in-principle-settlement agreement relating to Operation Car Wash with Brazil authorities for S$182.4m (vs. c.S$600m for Keppel O&M), removing the overhang of potential legal liabilities relating to this, which investigation has dragged on for over 10-years. In addition, they have also fixed their Investor Day on 15-Mar, earlier than previous guidance of potential slipping into 2Q. STM is also proposing a 20:1 share consolidation, subject to shareholders’ approval at upcoming AGM. This shall made STM’s shares more appealing to institutional investors who might not be able to invest in penny stock. Orderbook stood at c.S$16.2bn, which should be a tad higher than end Sept-2023 at c.S$18bn if we include the 3rd TenneT project that they just received notification to proceed a week ago. There might be some knee-jerk reactions to the massive write-down. We think this should mark the near term bottom of the stock given the improving operating profitability and removal of overhangs. Our forecasts and current TP of S$0.18 (1.5x PB) are under review. NAV would be lowered to around 10 Scts post the provisions and write-down.
| Seatrium | INTERIM | |||||||
| Currency S$ | ||||||||
| FY Dec (m) | 1H20 | 2H20 | 1H21 | 2H21 | 1H22 | 2H22 | 1H23 | 2H23 |
| Sales | 906.2 | 604.1 | 844.2 | 1,018.0 | 1,095.0 | 852.2 | 2,885.5 | 4,405.977 |
| Cost of Goods Sold | (1,100.8) | (900.0) | (1,432.4) | (1,512.2) | (1,187.9) | (891.5) | (3,035.9) | (4,464.933) |
| Gross Profit | (194.6) | (295.9) | (588.2) | (494.1) | (92.9) | (39.3) | (150.4) | (58.956) |
| Other Operating Income | 93.2 | 53.0 | 68.2 | 57.4 | 46.5 | 63.6 | 164.5 | 104.873 |
| General and administrative expenses | (46.8) | (46.5) | (44.9) | (44.3) | (58.4) | (52.1) | (32.8) | (332.638) |
| Other Operating Expenses | (24.5) | (119.4) | (144.0) | (34.1) | (10.3) | (63.7) | (153.9) | (1,113.318) |
| Operating Profit | (172.8) | (408.8) | (708.9) | (515.2) | (115.1) | (91.4) | (172.6) | (1,400.039) |
| Non-Operating Income | 0.5 | 0.0 | 0.0 | 0.0 | ||||
| Interest Income | 29.9 | 21.7 | 22.9 | 27.9 | 35.0 | 67.2 | 92.1 | 104.163 |
| Interest Expense | (79.0) | (62.8) | (42.1) | (40.5) | (54.6) | (82.1) | (158.7) | (129.454) |
| Share of Associates’ or JV Income | 0.6 | (0.0) | 0.7 | 0.5 | 0.4 | 0.7 | (1.3) | 8.323 |
| Exceptional Gains/(Losses) | 0.0 | 0.0 | ||||||
| Pretax Profit | (220.8) | (449.9) | (727.5) | (527.3) | (134.3) | (105.5) | (240.5) | (1,698.828) |
| Tax | 26.5 | 57.0 | 78.0 | 1.4 | (10.8) | (15.1) | (26.3) | 12.454 |
| Minority Interests | 2.2 | 2.5 | 2.3 | 2.5 | 2.2 | 2.2 | 2.5 | 10.531 |
| Net Profit | (192.1) | (390.4) | (647.2) | (523.3) | (142.9) | (118.3) | (264.4) | (1,675.843) |
| Preference Dividend for the period | ||||||||
| Net Profit after Preference Div | (192.1) | (390.4) | (647.2) | (523.3) | (142.9) | (118.3) | (264.4) | (1,675.8) |
| Recurring net profit | (192.1) | (390.4) | (647.2) | (523.3) | (142.9) | (118.3) | (264.4) | (1,675.843) |
| Impairment and Provision | 144.0 | 472.0 | 367.0 | 259.0 | 1,709.2 | |||
| Net Profit (pre Impairment & Provision) | (192.1) | (246.4) | (175.2) | (156.3) | (142.9) | (118.3) | (5.4) | 33.4 |