Maybank Research retains sell on Icon Offshore

KUALA LUMPUR: Maybank Investment Bank Research is retaining its sell call on Icon Offshore with an unchanged target price versus its last traded price of 12 sen based on 0.9 times enterprise value/ replacement value.

The research house said on Monday while the improvement in its offshore vessels (OSV) utilisation this year is a given, the need to resolve its financial predicament is Icon’s key priority (net gearing level of 727% as at December 2018), which is set to be unveiled in 3Q19. 

“Also, daily charter rate (DCR), which is at its historical trough now, needs to rise to warrant a re-rating,” it said.

Maybank Research pointed out Icon has announced the three plus one plus one year charter of five AHTS for the Petronas Integrated Logistics Control Tower (ILCT) contracts and (ii) one straight supply vessel (SSV) for PCSB’s six plus six months contract. 

Icon has deployed these OSVs, namely Tigris, Marissa, Azra, Lotus and Sophia for the former (3 units to PCSB and one each for Hess and IPC) since Sep 2018, on a call-out basis and Tanjung Pinang 2 for the latter since March 2019. The DCRs are to be in the RM21,000 to RM23,000 range for these vessels.     
   
“While the OSV market, especially the domestic segment, has improved, premised on Petronas’ Activity Outlook report, our earnings estimates are unchanged. 

“We expect Icon to remain in the red in 2019, on an average OSV utilisation of 60% (vs. 56% for 2018). Its DCRs, which are at a historical trough, need to rise to reflect a cyclical recovery. Icon needs to achieve a 62% utilisation just to be P&L break-even,” it said.  

Similar to most of its OSV peers, Icon is in the Corporate Debt Restructuring Committee (CDRC) scheme too to address its balance sheet (i.e. de-gear/ refinance and restructure its debts). 

Its proposed restructuring scheme, which is currently in progress, is scheduled to be announced in 3Q19. 

“The urgent need to restructure takes precedence over any prospect of an earnings turnaround or fleet rejuvenation exercise. The age profile of its OSV fleet averages around 10 years old,” said Maybank Research.