Fresh allegations of offences by Seatrium in connection with a Brazilian corruption scandal will drag on investor sentiment towards the company, says an analyst.
UOB Kay Hian’s Adrian Loh said the offshore and marine giant has had a flow of positive news in the past few months, but the announcement of a new investigation by the Singapore authorities into Operation Car Wash has “capped its share price upside in the near term”.
Earlier this month, the Monetary Authority of Singapore and the Commercial Affairs Department said they were conducting a joint investigation into offences potentially committed by the company in the landmark anti-corruption probe in Brazil.
“Unfortunately, the negative news regarding Seatrium’s deletion from the MSCI Singapore Index and an Operation Car Wash investigation … has overshadowed the good news,” said Loh.
“We were surprised by the revelation of yet another investigation by the Singapore authorities and believe that the market and the company itself were blindsided by this announcement, believing that the prior settlement agreement with the Brazilian authorities (in February 2024) and completion of investigations by Singapore’s Attorney-General’s Chambers and Corrupt Practices Investigation Bureau (in March 2024) had drawn a line in the sand.”
Despite this, Loh maintains his “buy” recommendation for Seatrium, but at a lower price-to-book-based target price of SGD 2.35 ($1.73) from SGD 3.23 previously.
“While Seatrium is exposed to the offshore marine and offshore renewables upcycle, we are cognizant that the recent negative news flow regarding the latest investigation … and the lack of transparency as to whether there are any further investigations in the offing, will cause share price volatility in the near term,” he said.
“We continue to like Seatrium as we believe that the company will benefit from stronger offshore marine dynamics as well as demand for offshore vessels and structures related to the renewables industry.
“In addition, the normalisation of economic activity should result in a greater volume of shipping activities, thus positively impacting its repairs/upgrades segment.”
In addition, Loh said that while 40% of Seatrium’s current orderbook is in the renewable energy space, with the rest related to oil and gas projects, its addressable market is “arguably much larger when taking into account carbon capture, usage and storage, floating LNG and ammonia storage and transport which feeds into the hydrogen energy chain”.
“In our view, this is one of the key segments which we will be watching closely given the large annual addressable market size totalling SGD 20bn to SGD 30bn,” he said.
“Importantly, this is a market that is non-cyclical given that ships need to be either repaired or upgraded at least every three to five years.
“We highlight that in 2024 alone, the company has secured favoured customer contracts … with Hyundai LNG Shipping, GasLog LNG, Shell International Trading & Shipping Co and TMS Cardiff Gas for repairs, refurbishment and upgrading activities for LNG vessels.”
