Yahoo Finance Seatrium Aims for a Return on Equity of More Than 8% by 2028: 5 Highlights from its Latest Investor Day
Seatrium Limited (SGX: S51) may have reported a downbeat set of earnings for 2023, but the blue-chip group is looking at the future rather than the past.
As a recap, Seatrium was formed from the merger of Sembcorp Marine and the offshore and marine division of Keppel Ltd (SGX: BN4).
The manufacturer of sustainable offshore and energy solutions such as oil rigs and ships released its Investor Day 2024 slides.
The group is targeting to achieve profitable and resilient growth over the next five years.
Here are several highlights from Seatrium’s inaugural Investor Day.
1. A four-prong strategy
First off, Seatrium’s strategy is to ride industry tailwinds and identify long-term energy megatrends that will enable it to sustainably grow its business.
There are four pillars which the group is targeting – oil and gas, offshore wind, repairs and upgrades (R&U), and CCS (carbon capture storage) & new energies.
Seatrium has a strong record of more than 1,300 successful deliveries with a delivery model that emphasizes global, end-to-end execution.
For R&U, the group’s yards are strategically located along major shipping lanes, enabling it to quickly work on client’s vessels and rigs.
Seatrium has also established 26 long-term partnerships with more than 85% of its customers being repeat ones.
The group also boasts state-of-the-art technology such as AR-assisted remote inspection that can reduce manhours by 30%, along with a real-time digital twin asset monitoring system to deliver a 10% to 20% efficiency boost for field engineers.
It aims to continue to expand its technological and intellectual property capabilities and invest in the future.
2. Strong oil and gas demand expected
Moving on to the oil and gas segment, management sees strong demand for offshore oil and gas over the next few decades.
This demand is also because of persistent under-investment in oil and gas infrastructure over the years.
Management also believes that this will be the “golden age for FPSOs (floating, production, storage, and offloading vessels)”.
More than S$150 billion is projected for capital expenditure for FPSOs in the next five years to support offshore oil and gas production.
Seatrium is well-positioned to benefit from this wave as it has a strong track record and product expertise along with advanced yard infrastructure and capabilities.
3. Blown away by wind power
Apart from traditional oil and gas, Seatrium also sees strong potential in the offshore wind market supported by a transition to cleaner energy sources.
Offshore wind capacity amounts to just 100 GW at present but is expected to multiply eightfold to 800 GW by 2040.
This trend translates to a market opportunity of between S$100 billion to S$150 billion from now till 2028.
Seatrium has built up a solid reputation for fixed offshore wind solutions with the next step being floating wind foundations along with floating substations.
The group intends to expand its footprint in the emerging Brazil offshore wind market and commercialise its in-house floating wind solutions to capture more business for this division.
4. Large and attractive market for repairs and upgrades
The R&U division should also see growing demand across segments.
There are 16,815 tankers out in the market with more than three-quarters older than a decade, thus providing steady demand for repairs.
70% of containerships and 79% of passenger and cruise ships are older than 10 years, thus creating a potential market size of between S$20 billion to S$30 billion per annum.
These vessels may also require higher-value upgrades and receive turnkey energy efficiency retrofits.
Seatrium can provide a comprehensive range of work for just one vessel and boasts a proven track record of high-quality, on-time deliveries.
Management’s strategy for the R&U division is to scale its franchise globally along major shipping lanes and pursue higher-value projects in selected markets.
5. Lofty financial targets for 2028
Seatrium has set several lofty financial targets that it plans to achieve by 2028.
The vessel repair specialist intends to grow its earnings before interest, taxes, depreciation and amortisation (EBITDA) to more than S$1 billion in four years.
It also intends to achieve a turnaround with a return on equity (ROE) of more than 8%.
As for its net debt to EBITDA, the group has set a target of maintaining this between two to three times.
To achieve its EBITDA objective, Seatrium will look at achieving synergies while rolling out cost optimisation strategies.
It will also aim for margin uplift and will rationalise its asset base.
Seatrium has identified around S$500 million in potential cost savings from procurement and reduction in corporation overheads.
It intends to diversify its funding sources with a target of 50% of its funding to be green or sustainability-linked by 2028.
Get Smart: An impending share consolidation
Investors need to have patience for Seatrium to see through these initiatives.
Management is optimistic that there is a large addressable market for the group that it can tap into in future years for growth.
Seatrium has also proposed a 20-for-1 share consolidation to reduce volatility and increase the attractiveness of its shares.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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