Icon Offshore Bhd
Outperform. Target price: RM0.80
PETRONAS forecasts a higher demand for OSVs in 2024, aligning with increased drilling activities. The OSV market is strengthening, evidenced by a daily charter rate (DCR) rise of 8-10% YoY in 2023. With no new vessels built by local players since 2014 due to financing constraints, we anticipate the supply crunch to continue, supporting a sustained DCR uptrend from 2024 onwards. This is further supported by strong demand from the Middle East and West Africa markets.
Icon’s earnings are set to rise, as 11 of its OSVs, currently under the ILCT contract expiring in 1H FY24, are likely to be renewed at higher spot market rates. Concurrently, cost of sales is expected to increase by 2% YoY, reflecting easing supply chain inflation. This positions Icon to fully capitalise on the DCR uptrend post-contract renewal. We assume an average DCR of RM49,005/52,600 for FY24/FY25.
The group has a balanced fleet of AHTS and PSVs with an average age of 14 years, well-positioned to benefit from the tightening OSV market. It is reactivating two laid-up AHTS vessels in response to market demand. Given the challenges in acquiring new vessels, stemming from financing constraints and a scarcity of global yard capacity, Icon’s position is notably advantageous. The group operates a fleet of OSVs that still has considerably extended operational life spans.
We assess that Icon has no immediate or medium-term requirement for fundraising. Following a share consolidation and rights issue with free warrants in 2020, the group raised RM247 million and restructured its debt on improved terms.
We are initiating coverage on Icon with an OUTPERFORM rating and a TP of RM0.80.