Icon Offshore (ICON) one is the largest offshore support vessel (OSV) provider in Malaysia and Southeast Asia in terms of number of OSVs. The operation of ICON is turning around in FY2021 on the back of higher utilisation rate; hence we expect the company to register net earnings of RM30.5m and RM45.3m for FY21 and FY22 respectively. BUY with a target price of RM0.17 based on a PER of 10x (Bursa Malaysia Small Cap Index average).

ICON owns and operates one of the youngest, fastest growing and most sophisticated fleets of OSVs in Southeast Asia. The Company provides a wide range of logistical support services throughout the entire offshore oil and gas life cycle, from exploration and appraisal, field development and operation and maintenance, through to decommissioning. ICON is a Malaysia-based OSV provider and all of the vessels are Malaysian-flagged.

The outlook of upstream exploration and production activities in Malaysia is expected to be positive this year as compared to last year on the back of recovery of crude oil price. Meanwhile the demand and utilisation for all rig classes in Asia Pacific is improving following the adverse events in 2020 due to the impact of Covid-19 pandemic and oil price crash. Furthermore, PETRONAS remains committed to maximise its oil production as a cash generator and we see this as an opportunity for ICON.

ICON has a remaining order book amounting to RM770.6m as of September 2021, providing clear earnings visibility for the next 3 years. On top of that, the company’s current tender book stands at RM920.2m. ICON’s key priority for FY21 and beyond includes (i) cost optimisation; (ii) improve operation efficiency; and (iii) maximising utilisation rate. As such, the company’s 9MFY21 results have seen huge improvement in the bottom line as the company registered a core net profit of RM25m as compared to RM4.2m YoY due to better operational efficiency and higher utilisation rate.

We expect ICON to register net earnings of RM30.5m for FY21 despite the strong 9M results due to seasonal factor in 4QFY21. Meanwhile we expect FY22 earnings to grow by 48.2% to RM45.3m for FY22. Financial leverage is manageable with net gearing of 0.6x supported by a decent interest coverage ratio of 3.75x as of 9MFY21. Our BUY recommendation is premised on (i) its strong earnings visibility and growth potential underpinned by its RM770.6m outstanding orderbook; (ii) increasing utilisation rate as a result of recovery within the O&G sector post pandemic; and (iii) reasonable valuations.

Source: Rakuten Research - 17 Nov 2021