OGSE (Oil & gas service and equipment) player. Being one of the pure-play OSV players on Bursa Malaysia, Icon Offshore Berhad (ICON) owns 20 OSVs, with a presence in Malaysia and Brunei. The group also owns one jack-up drilling rig but is in the midst of disposing it.

Improving OSV outlook. Given the current buoyant oil prices, we note that the combination of strong demand for OSV amid the uptick in rig count and E&P investment and sliding OSVs in the market over the years following the slump in oil prices from 2015-2020 has spurred OSV’s day charter rate (DCR) to rise steadily. Based on our channel checks, regional DCR has risen 10-15% YoY, with a higher OSV utilization seen across Malaysia’s players such as ICON and PERDANA. Also, from the published Petronas Activity Outlook 2022, the outlook for OSVs is expected to improve mildly in 2022, with a total of 336 support vessels to be chartered throughout the year (vs. a total of 289 support vessels in 2021). There are also ongoing negotiations to increase the life span of some vessel classes, such as anchor handling tug supply vessels, to 20 years from the existing 15, which would also augur well for ICON (average vessels age: ~9 years old).

Potential M&A? To recap, ICON is looking to dispose its jack-up rig to Saudi Arabia based ADES Arabia Holding for a cash consideration of RM381m (scheduled to complete in 4Q22). Overall, we are delighted with ICON’s high disposals value, which works out to be more than double the price ICON paid in 2020 when oil prices crashed to below zero. Upon the deal completion, ICON will then turn into a net cash company (net cash position of RM24.4m vs net debt of RM343 in 2Q22) with a divestment gain of RM185.5m (62% of market cap). With this, ICON is on a better footing to embark on M&A backed by its war chest, considering the group has been looking for new income streams to support its growth, given the volatile earnings in the OSV business. We note that ICON is one of the parties interested in buying 51% stake in Sapura Baker Hughes TPS Sdn bhd – a maintenance, repair and operations (MRO) company, with an annual profit of RM17m-38m in FY18-21 (vs jack-up rig: RM6.4m in FY21).

Rectangle breakout? Technically, ICON is still being trapped at RM0.09-0.11 areas. A successful breakout above the RM0.130 hurdle will spur the prices toward RM0.14-0.16 levels, creating a new uptrend leg. Cut lost at RM0.085.

Source: Hong Leong Investment Bank Research - 12 Sept 2022