Bearish outlook, conservative targets prompt spike in Seatrium’s short interest

A COMBINATION of deeper full-year losses, fairly conservative financial targets, as well as a bearish and uncertain sector outlook has led to a spike in the short interest levels of Seatrium . 

The offshore and marine giant was, as a result, the second most shorted stock on the Singapore Exchange (SGX) for the week ended Wednesday (Apr 3), a report from S&P Global Market Intelligence showed. 

Short interest – or the percentage of outstanding shares on loan – in Seatrium stood at 6.43 per cent for the week. The number of Seatrium shares that were out on loan over the last seven days was up 6.58 per cent. S&P excludes financing and pay to hold trades from the loan quantity. 

As at Wednesday, about 4.4 billion Seatrium shares were borrowed or out on loan, S&P data showed.

At current levels, the short interest of Seatrium is second to only AEM, which had a short interest of 6.6 per cent as at Wednesday. 

Singapore Airlines, City Developments Ltd and Nanofilm Technologies made up the remainder of the top five shorted stocks on SGX. 

S&P’s securities finance product specialist Karthik Ramesh said Seatrium’s share price has declined over 90 per cent since 2020. 

In the past six months, the counter’s price has fallen to S$0.08 from S$0.12, and short interest over this period has risen by almost 40 times to about 4.4 billion shares on loan currently, he said.

Ramesh added that the bearish sentiments surrounding Seatrium could be due to the “heavy losses” the company posted for the full fiscal year ended Dec 31, 2023, that were attributable chiefly to a slew of writedowns. 

Seatrium also announced a settlement of S$182.4 million to Brazilian authorities over corruption allegations relating to the infamous Operation Car Wash, and is set to carry out a 20-to-1 share consolidation to boost investor interest in the company. 

“Share consolidation strategies can also be viewed as a negative signal to investors,” Ramesh added. 

Seatrium’s top executives unveiled some targets on the company’s Investor Day on Mar 15. The group is aiming to achieve earnings before interest, taxes, depreciation and amortisation (Ebitda) of more than S$1 billion by 2028, and a return on equity of more than 8 per cent by that time. 

“The high short interest in Seatrium may be due to investor disappointment towards its recently announced financial targets, leading to expectations that its share price may fall further,” said Gerald Wong, founder and chief executive of investment advisory platform Beansprout. 

Hesitation

Analysts have expressed some hesitation about Seatrium. 

OCBC analyst Ada Lim said in a note on Monday that the counter could “continue to trade sideways in the near term”, although the latest update on Operation Car Wash can be viewed as a “positive development that lifts the overhang on the stock”. 

Lim said the company’s H1 results could be “an important signpost” for investors about the management’s ability to execute and secure new orders at reasonable gross margins. 

OCBC revised its fair-value estimate for Seatrium to S$0.155 from S$0.16.

UOB analyst Adrian Loh maintained a “buy” call on the counter, and said the company’s Ebitda target appears to be “an attainable goal”. 

“We continue to like Seatrium as we believe that the company will benefit from stronger offshore marine dynamics, as well as (a) demand for offshore vessels and structures related to the renewables industry,” he said. 

He added that the normalisation of economic activity should bring about a rise in the volume of shipping activities, which will boost Seatrium’s repairs and upgrades segment.