CGS-CIMB's Lim Siew Khee has reiterated her 'add' call and 19 cents target price on Seatrium, following its announcement earlier this morning that it has secured a letter of intent from Shell to help build a rig.
The rig is to be used for the so-called Sparta project in the Gulf of Mexico, with Shell owning 51% and Norway's Equinor holding the remaining 40%.
Sparta used to be called North Platte and was held by France's TotalEnergies.
Lim, in her Aug 28 note, estimates that the contract value for Seatrium to be between $300 and $400 million and generate an Ebit margin of between 7 to 8%. This contract will help bring Seatrium's order wins year to date to $4.6 billion.
Lim's 19 cents target price is based on 1.5x FY2024 book value, which is the trading range from Jan 2015 to May 2023.
Downside risks include cost overruns while possible upside might come from better-than-expected margins and Seatrium starting to turn profitable earlier than expected.
