Seatrium’s share price plunges after Investor Day. What disappointed investors?

What happened?

Seatrium Limited recently hosted its inaugural Investor Day.

Earlier, we shared that Seatrium was one of the Singapore companies going through a strategic review or transformation.

We have already seen companies such as Sembcorp Industries, Singtel and Starhub outlining their plans to transform the company. 

Likewise, Seatrium’s Investor Day outlined a strategy plan to capture opportunities and generate profitability by 2028.

However, Seatrium’s share price fell to a 52-week low of S$0.076 after the Investor Day. This would also bring Seatrium’s share price decline year-to-date to more than 30%.

We dig deeper into the Seatrium’s Investor Day to find out more about its long-term plans, and what may have led to the disappointment amongst investors. 

What investors should know about Seatrium’s Investor Day initiatives

#1 – Four key pillars of growth 

Seatrium’s vision is to become a leading global provider of solutions to the offshore, marine, and energy industries.

To realise its long-term vision, Seatrium will rely on four key pillars of growth.

These are:

• Oil and gas
• Offshore wind
• Repairs & upgrades
• Carbon capture storage (CC) & new energies.

#2 – Stronger demand in oil and gas market

Management sees strong demand for oil and gas in the coming years because of escalating geopolitical tensions and global concerns about energy security and reliability.

Coal consumption is projected to plunge by 40% by 2050 but natural gas and oil demand should remain steady over this period.

Seatrium boasts an extensive five-decade track record in the O&M business with a 90% customer retention rate. 

It is also the market leader for FPSOs (floating, production, storage and offloading vessels), FSOs (floating storage and offloading vessels), and FPUs (floating production units) with 254 delivered to date.

For the FPSO market, more than S$150 billion in capital expenditure is expected over the next five years to support offshore oil and gas production.

This number provides bountiful opportunities for Seatrium to capture more business by utilising its advanced yard infrastructure and capabilities.

#3 – The offshore wind market presents an enticing opportunity

The offshore wind market is seeing strong demand as the world looks towards cleaner energy sources.

Offshore wind capacity is projected to grow to 800 GW by 2040, up significantly from the current capacity of just under 100 GW.

This increase represents a S$100 billion to S$150 billion opportunity for Seatrium up till 2028.

With the floating offshore wind market set to accelerate in 2030, there could be further opportunities for the group to capture more business.

#4 – Repairs and upgrades provide resilience

While the oil and gas and offshore wind markets can be cyclical, Seatrium’s repairs and upgrades (R&U) division remains resilient against these cycles.

The diagram below shows the number of vessels by category along with their fleet age profile.

From the above, there is a large proportion of vessels (tankers, containerships and passenger vessels) that are more than a decade old.

As these vessels age, they will be subject to mandatory drydocking repairs with required upgrades for more than 60% of this group of vessels.

Because of this requirement, Seatrium has identified a market size of around S$20 billion to S$30 billion per annum that it can tap into.

#5 – Targeting return of equity of 8% or higher in 2028

Putting these drivers together, Seatrium targets to increase its revenue to S$10 billion to S$12 billion in 2028, from S$7.3 billion in 2023.

The increase will be driven by securing orders for more “green” products, as well as an increase share of Repairs and Upgrades baseload revenue. 

In the meantime, Oil and Gas related equipment will also help to support its revenue. 

With the higher revenue, Seatrium plans to achieve EBITDA (earnings before interest, taxes, depreciation and amortisation) of S$1 billion or more in 2028. 

This will then allow the company to generate a return on equity (ROE) of 8% or higher.

Apart from the higher revenue expected, management intends to deliver on legacy projects and pursue synergies and cost optimisation to generate higher margins.

At the same time, the group will rationalise its asset base to reduce its costs and enable it to gun for higher returns.

For example, the company has identified S$300 million of annualised synergies and cost savings following the combination with Keppel Offshore & Marine, including introducing standard pricing with customers and reduction in corporate overheads. 

It also aims to achieve S$200 million in procurement savings with improved supply chain management, which may then lead to improved project margins. 

On a headline basis, the EBITDA target of S$1 billion in 2028 may represent a significant increase from Seatrium’s EBITDA of just S$0.2 billion for 2023. 

However, excluding provisions and writedowns in 2023, Seatrium’s underlying EBITDA was above S$0.6 billion in 2023.

This means that there may not be a sharp spike in profitability in the next five years if the company were to simply achieve its profitability targets. 

What would Beansprout do?

Despite the improve in profitability expected in 2028, investors appear to be disappointed by Seatrium’s strategy laid out in its latest Investor Day. 

Some investors appear to have expectations for a stronger turnaround than what the company presented with a recovery in the company’s order wins. 

This may make the company’s targets appear uninspiring, especially compared to more ambitious plans laid out by other companies.

For example, Sembcorp Industries aims to grow its gross installed renewable capacity to 25 Gigawatts (GW) by 2028.

Starhub has also demonstrated an improvement in profitability as part of its DARE+ transformation.

At the same time, Seatrium did not pay out a dividend in 2023, which may mean that investors do not get to enjoy a dividend income while awaiting for the transformation to happen.

On the other hand, Sembcorp Industries raised its total dividend per share in 2023 to 13 cents, Starhub raised its total dividend per share in 2023 to 6.7 cents, and Singtel raised its interim dividend per share to 5.2 cents.  

If you are a shareholder of Seatrium, one thing to keep a lookout for is the company’s proposed a 20-for-1 share consolidation, which is subject to shareholder approval at its coming AGM.

As shareholders who hold less than 20 existing shares as at the record date will not be entitled to any consolidated shares, shareholders may consider purchasing additional shares to increase the number of shares as at the record date, which has yet to be announced.

Related links:

• Seatrium share price and analysis