Background

On 26 March 2024, Liannex Maritime Sdn Bhd acquired a controlling 50.2% stake in Icon from Ekuinas for 63.5 sen per share in cash, thereby triggering the mandatory general offer.

Liannex Maritime Sdn Bhd is a wholly-owned subsidiary of Liannex Corporation (S) Pte Ltd, a Singapore entity. Liannex is mainly involved in land and marine logistics business, port operations and warehousing, energy commodities trading, which is similar to Maybulk’s ex business.

Liannex and its Malaysian subsidiary are owned by Lim Han Weng (who is also Yinson Holdings Bhd's Group Executive Chairman, and major shareholder) along with his wife Bah Kim Lian. Notably, Yinson is one of the largest FPSO suppliers globally.

Now, let’s have a good guess on why Yinson’s boss is interested in acquiring Icon:

1. Booming O&G industry

Brent crude oil price has been hovering between USD80-90 per barrel for a long time. Coupled with the tensions in the Middle East, oil price is likely to sustain at current price range for a foreseeable period. This price range is deemed favourable for O&G major operators like Petronas. With the expected capital expenditure by Petronas of RM50b-60b in FY2024, all O&G players are expected to benefit from the outpouring of cash.

2. Demand outstrips supply in OSV sector

Kenanga research indicated that Petronas requires a minimum of 200 vessels for support to sustain its production levels. With the expected increase in demand from Petronas, this number could rise to 300 vessels in 2024 and onwards. However, the current fleet under the Malaysia OSV Owners Association (MOSVA) sums up to 270 vessels only. At this moment, we can see that the demand for OSV is significantly exceeds supply.

3. Favourable spot rates

Spot rates for OSV are very favourable for the industry players and have been steadily increasing over the years. More importantly, it is expected to remain high due to limited vessel supply. In addition, new vessels are not expected to enter the market in short period of time as shipbuilding may take years. If we observe the recent contract wins by Perdana Petroleum from Petronas, you will realise that the daily chartered rate (DCR) has indeed increased.

4. Quality assets

Icon currently owns about 20 vessels with an average age of 12 years old. For information, a vessel is allowed to operate for 20 years and hence, the vessels of Icon are still in their prime ages with the ability to continue generate cash flow to Icon for the next 8-10 years.

5. Contract renewals

Most of the vessels of Icon are under long-term contracts with Petronas and hence earnings of Icon have not reflected the upside arising from the shortage of OSV. But the good news is that the long-term contracts secured with Petronas for 10-13 vessels are expiring in June-July 2024. Premised on this, we can possibly expect the announcements of renewal of contracts for Icon in coming months.

6. Higher DCR

If the renewal of contracts with Petronas is successful in June-July 2024, the DCR secured will likely reflect the current market environment with higher DCR rate.

7. Synergy

Yinson itself is a well-established Malaysian O&G group with ownership and operational experience in FPSO vessels as well as OSV. Potentially, there could be horizontal integration/synergy between Yinson-Icon-Liannex. Icon can potentially enjoy a wider exposure to the international O&G market by leveraging on Lim’s established network. Looking forward, Icon may be able to get contracts / tenders from other O&G players in addition to its existing client – Petronas.

8. Unleashing capability to distribute dividend

Based on the recent BFM interview with the MD of Icon, we understand that the management aims to distribute dividends to investors moving forward. In fact, they have distributed 5c dividend in FY2023. 

Interestingly, Maybank IB has previously predicted that Icon will be able to, at least, maintain a 5c dividend annually. Based on the current market price of about RM0.75, the dividend yield would reach a whopping 6.7%. Also, bear in mind that the current dividend rate has yet to capture any upward revision of DCR.

Now, is ICON another blue chip stock in the making? Only time will tell.

p/s: This is not financial advice and there is no buy and sell recommendation. This is purely for information purposes only.