Seatrium Limited (formerly SembCorp Marine and KOM)

[weijian]

Pretty good results, https://links.sgx.com/FileOpen/FY2024%20...eID=833750 though from Friday's market action it looked like the market expected better results.

In some ways I guess this is why the management was doing those buybacks through 2024.

Was very skeptical then about it. Have to admit that the management knew what they were doing.

Finally some relief for long suffering Sembcorp Marine shareholders after being hammered over the last five years plus.

Hi Shrivathsa,

I had been skeptical of the SBB since it started ~8months ago and IMHO, this skeptism hasn't been proven wrong yet.

For a start, their weighted average cost of debt for 2H24 is 4.9% (slide23 of ppt). Based on FY24 year end EPS~4.6cents and assuming an average SSB price of 1.80sgd, that translates to PE 1.8/0.046 ~ 39 or earnings yield of 2.6%.

In essence in FY24, Mgt used ~40mil to buy annual earnings yield of 2.6% where the same capital may had been used to pay down debt that cost 4.9% annually. FY25 earnings will have to 2x just to reach parity with the alternate usage to pay down debt, by end FY25.

Seatrium wrote down ~20% of their PPE or a whopping 1.1bil in FY23. My guess is that this largely contributed to the ~40mil reduction in PPE depreciation in FY24. This 40mil more of a "kitchen sinking effect of FY23" than a true earnings improvement, if you know what I mean.

In summary, Seatrium is a capital intensive project based business. So the higher the project wins (which will also translate to higher future earnings), the more working capital it will need too. Therefore, it is really puzzling why they had spent 40mil in the last 6 months to do SBB when there seems to be so many other obvious places to place that capital. Of course, all these could be just me, a keyboard warrior nobody imagining things up.

[weijian]

The installation vessel was meant to serve the offshore wind installation off New York waters and the land leasing was signed in 2017 with the US Gov (under Trump). Initial required approvals were obtained in 2022 and all approvals by early 2024 (under Biden) for this Empire Wind 1. When Trump won again, there was a ~1month  stop work order issued in April2025.

Such infrastructure projects are known for their long lead times to get all the necessary approvals. With the current divisive mood in US, it seems like the contractors (whether main/sub) and their suppliers are left holding the bag.

RECEIPT OF NOTICE OF TERMINATION

The Contract was for the construction of a Wind Turbine Installation Vessel (“WTIV”), for Maersk Offshore Wind (“Maersk”) through its affiliate, for deployment at U.S. offshore wind farm, Empire Wind 1.

The Contract has a total value of approximately US$475 million (equivalent to about S$610million1). As at the date of this announcement, the project is approximately 98.9% completed.

The Company wishes to inform that it received a notice of termination (the “Notice of Termination”) under the Contract on 9 October 2025. SEI will explore viable solutions, including with the end-customer, Empire Offshore Wind LLC.

https://links.sgx.com/FileOpen/Notice%20...eID=863535

[mslee888]

Its kind of weird to me to me with order termination at 98.9% completion. Hopefully this impact to Seatrium is limited. 

===============================================
As at the date of this announcement, the project is approximately 98.9% completed.
===============================================

[weijian]

Its kind of weird to me to me with order termination at 98.9% completion. Hopefully this impact to Seatrium is limited. 

===============================================
As at the date of this announcement, the project is approximately 98.9% completed.
===============================================

Hi mslee888,

Seatrium should be well aware of their customer and customer's customer issues. But since they don't have bargaining power, they simply have to follow contract terms (at least until the contract is officially violated). Seatrium used to do 20-80 payment terms (20% deposit and full payment before delivery) but I think it should be more stringent now although I don't have the exact progressive payment terms. But looking at the trend of contact assets/liabilities on its BS, i am not too optimistic that there will not be a write-off if things don't turn out well.

Another issue I see is unlike ships (containers, oil tankers, dry bulkers) which have a wide variety of uses and operators, this "wind installation vessel" sounds pretty niche. I read from somewhere that offshore wind industry has been cooling off for some time and it has progressed into the next stage of maintenance rather than installation as the main growth engine. So it remains to be seen if there are ready buyers if it is auctioned off. There is a good chance the vessel remains on the BS for some time. Eventually, it may go into some Keppel's private infrastructure fund.

[mslee888]

Its kind of weird to me to me with order termination at 98.9% completion. Hopefully this impact to Seatrium is limited. 

===============================================
As at the date of this announcement, the project is approximately 98.9% completed.
===============================================

Hi mslee888,

Seatrium should be well aware of their customer and customer's customer issues. But since they don't have bargaining power, they simply have to follow contract terms (at least until the contract is officially violated). Seatrium used to do 20-80 payment terms (20% deposit and full payment before delivery) but I think it should be more stringent now although I don't have the exact progressive payment terms. But looking at the trend of contact assets/liabilities on its BS, i am not too optimistic that there will not be a write-off if things don't turn out well.

Another issue I see is unlike ships (containers, oil tankers, dry bulkers) which have a wide variety of uses and operators, this "wind installation vessel" sounds pretty niche. I read from somewhere that offshore wind industry has been cooling off for some time and it has progressed into the next stage of maintenance rather than installation as the main growth engine. So it remains to be seen if there are ready buyers if it is auctioned off. There is a good chance the vessel remains on the BS for some time. Eventually, it may go into some Keppel's private infrastructure fund.

Hi WeiJian, thanks for sharing your perspectives. I am vested in Seatrium so its kind of disappointing when I thought the worst is behind us with share price creeping up,  it got hit by another bout of negative news.

[weijian]

A few things we can understand from this announcement:

(1) The balance payment is 360mil and with full contract value of 475mil, the balance is 360mil/475mil~75% of full contract value. So this translates to only ~25% been paid up before it was completed. The payment term  for this wind installation vessel is ~25-75 (25% deposit, 75% payment upon delivery) isn't too far from the 20-80 of yesteryear.

(2) During the construction, Seatrium has to fund the customer's built with working capital. Upon delivery, Seatrium becomes a bank that funds its customer's hire/purchase for the next 10 years. If the customer has a charter, it will pay off the mortgage. If it doesn't, it can amend and extend.

Seatrium, Maersk resolve contract dispute with giant line to pay US$360 million upon vessel delivery

[SINGAPORE] Offshore, marine and energy specialist Seatrium has reached an agreement with buyer Maersk Offshore Wind’s affiliate Phoenix II, for the latter to pay the balance of the contract price – valued at US$360 million – upon delivery of a vessel.

Both parties agreed for the Maersk affiliate to pay part of the contract price – US$250 million – using an interest-bearing credit arrangement. This was extended to the buyer by the company’s wholly owned subsidiary, Seatrium (SG). The credit arrangement is for up to 10 years and repayable through cash generated by the vessel.

Seatrium said its subsidiary will have a mortgage over the vessel, as well as first priority rights over the vessel and the Maersk affiliate’s bank accounts.

https://www.businesstimes.com.sg/compani...l-delivery