Post-completion of a strategic review of its operations, Seatrium announced on 30 Jan that it plans to write down surplus non-core assets and inventories. While it anticipates operational and financial performance to continue to improve, Seatrium expects FY23F net loss to be significantly higher than FY22. See earnings calendar.
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We expect ~S$250m of write-downs in 2H23F
Recall that in 1H23, Seatrium provided S$231m for merger expenses and higher labour and contract costs for projects in its US yard. For 2H23F, we have now penned in S$250m for the potential closure of fully depreciated yards (such as Crescent, Benoi and Tuas), inventory and PPA impairment, as well as cost overrun provisions.
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Toning down our expectation on margin
We now expect gross margins of 5.5%/10% for Seatrium in FY24F/25F (previously 8.0%/13%).
We understand that projects clinched post-merger, including Tennet HVDCs, as well as Petrobras projects awarded pre-merger (P78, P80, P82 and P83), were contracted on double-digit gross margins. However, contracts secured by Seatrium and Keppel Offshore and Marine pre-COVID may still face tail-end challenges, including higher labour and supply chain costs not previously factored in, resulting in gross losses.
Toning down expectation on recovery pace too
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Above is the excerpt from research report by CGS-CIMB. Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
