Seatrium shares fall sharply after latest earnings. What disappointed investors?

Seatrium shares fall sharply 

Seatrium's share price fell sharply on 2 August after the company reported its earnings for the first half of 2024 (1H24).

The stock fell by more than 10% from its closing price of S$1.68 on 1 August, to reach an intra-day low of S$1.50.

This would reverse the stock's bounce from earlier this week, after the company issued a positive guidance for a positive net profit in the first half of 2024. 

Let us find out what may be some of the reasons for the share price decline. 

Summary of Seatrium's 1H24 earnings

• Seatrium reported net profit of S$36 million in 1H24, reversing from a loss of S$264 million in 1H23. 
• Excluding a one-off provision of S$79 million for settlement to MH Wirth, Seatrium's underlying profit would be S$115 million in 1H24. 

Seatrium's revenue increased 39% year-on-year to S$4.0 billion in 1H24. This is mainly due to the progressive revenue recognition from secured newbuild projects in its orderbook, as well as increased repairs & upgrades activities.

However, Seatrium's revenue in 1H24 declined from S$4.4 billion in 2H23, despite the significant growth in its orderbook over the past year. 

Likewise, Seatrium's underlying EBITDA of S$390 million in 1H24 represents just a slight improvement from the underlying EBITDA of S$370 million in 2H23. 

This would represent an underlying EBITDA margin of 9.7% in 1H24, compared to an underlying EBITDA margin of 8.4% in 2H23.

Seatrium's EBITDA in 1H24 was dampened by a S$70 million provision for onerous contracts, which management attributed to loss-making projects it expects to complete by 2024. 

In 1H2024, Seatrium secured S$13.4 billion in new orders, including the S$11 billion order from Petrobras announced in May. 

With the orders secured in 1H24, Seatrium net order book value reached S$26.1 billion as at 30 June 2024. This represents an increase from S$16.1 billion in December 2023, and marks the highest net order book in a decade. 

Seatrium's net leverage ratio improved slightly to 2.9 times as at 30 June 2024 compared to 3.2 times as at 31 December 2023. 

To support future projects, Seatrium secured a S$1.1 billion syndicated bank guarantee facility and a S$400 million green revolving loan facility from UOB for sustainable projects.

Management of Seatrium said that the joint investigation by Monetary Authority of Singapore (MAS) and the Singapore police’s Commercial Affairs Department (CAD) relating to a corruption case in Brazil is still ongoing, and they are not able to provide further details currently. 

Beansprout's take on Seatrium's 1H24 earnings

The fall in Seatrium's share price following its latest earnings likely reflect overly high expectations following the company's guidance earlier this week for positive net profit in 1H24. 

Investors may be disappointed by Seatrium's lower revenue in 1H24 compared to 2H23, as well as the slower-than expected improvement in its underlying EBITDA with the continued provision for onerous contracts. 

At the same time, the CAD investigation may also have weighed on sentiment towards the stock. 

This may have offset the growth in its orderbook with significant orders secured in recent months. 

Seatrium is targeting a revenue of S$10-12 billion, and a return on equity of 8% or higher in 2028. 

Based on the annualised 1H24 underlying net profit, the stock is trading at a P/E ratio of 22x. The stock has not paid a dividend to investors since 2018.

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Related links:

• Seatrium share price and share price target
• Seatrium dividend forecast and dividend history

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