This article first appeared in The Edge Malaysia Weekly on December 18, 2017 - December 24, 2017
ICON Offshore Bhd has faced several setbacks this year, from the failed merger with UMW Oil & Gas Corp Bhd to the unexpected departure of managing director Amir Hamzah Azizan. Its share price has slid far from its 52-week high of 48 sen in April and now trades at around 23 sen per share.
Despite all the setbacks, the company has seen an improvement in its vessel utilisation rate for the quarter ended Sept 30, 2017, to 68.5% from 59.1% a year ago, mainly from its anchor handling tug supply (AHTS) and platform supply vessels (PSV) on the back of higher offshore activities, particularly in the spot charter space.
Icon Offshore’s vessel fleet consist mainly of AHTS. It also operates PSV, accommodation work boats, straight supply vessels, anchor handling tug vessels and utility vessels. As at Aug 28, the offshore support vessel (OSV) player had a total of 35 vessels in its portfolio, making it one of the largest operators in Southeast Asia.
However, the better utilisation rates did not translate into higher revenue and profit for the company as lower average daily charter rates weighed down on revenue.
For the third quarter ended Sept 30, 2017, net profit shrank to RM1.5 million, RM1.3 million of which was attributable to non-controlling interests (NCI). A year ago, net profit amounted to RM2.76 million, of which RM620,139 was attributable to NCI. Revenue slipped 7.7% to RM58.13 million from RM62.99 million previously.
On a cumulative nine-month basis, net loss to equity shareholders totalled RM12.97 million, compared to a net loss of RM2.24 million previously. The OSV player slipped into the red in FY2015 and has yet to turn around.
An industry outlook report on Aug 3 by DBS Research notes that spot day rates for AHTS in Southeast Asia are close to the US$1 per bhp per day mark. It adds that rates below the US$1 per bhp per day are now the norm, and highlighted that operators do not willingly disclose rates now.
Meanwhile, a recent oil and gas sector report by Ambank Investment Research states that charter rates have been persistently low despite improved asset utilisation rates as Petronas maintains a cautious approach to upstream exploration and development expenditures.
“For 3Q2017 to date, contract awards have plunged by 68% q-o-q to RM689 million due to the lumpy RM1 billion Bokor central processing platform in 2Q2017. The overall trend is also dismal as contract awards dive 45% y-o-y to RM4.9 billion in 9M2017. For Malaysian operators that operate wholly offshore, these weak capex rollout prospects forebode that the worst can stretch for quite a while,” the report elaborates.
In an email reply to The Edge, Icon Offshore acting CEO Captain Hassan Ali agrees that the OSV market will remain highly competitive going forward, but says the group has put in place measures to position itself to benefit from any increase in offshore activities. However, he did not elaborate on how it plans to do so.
The company operates mainly in Malaysia but has also ventured to Brunei. Hassan says focusing on regional growth is in Icon’s strategic roadmap and it plans to build up its presence in Brunei with its local partners.
Nevertheless, DBS Research says it is seeing a topping out of OSV-to-rig ratios in 2018, which should drive a gradual recovery in utilisation and day rates.
“Due to an easing supply-side glut as well as early signs of a bottoming-out of demand — measured in terms of the working offshore rig count — we anticipate that 2018 will be the start of a long and gradual recovery in the OSV space,” it says. If this holds true, it could bode well for Icon Offshore.
Hassan adds that the increase in the oil price this year has impacted the overall outlook of the industry, which has seen an increase in activities compared to a year ago.
“Oil demand is expected to continue growing year-on-year basis, thus resulting in higher requirements for OSV. In fact, Petronas and other oil majors have achieved improvement in their results due to the higher oil price,” he says.
Crude oil prices have risen to over US$60 per barrel in the last few months from a low of US$44.82 in June.
As to who will lead Icon Offshore next, its 42.3% shareholder Ekuiti National Bhd (Ekuinas) says the company is searching for the next candidate to fill the managing director’s role.
But for now, business will continue as usual and it is confident the acting CEO will navigate the company to continue providing quality and reliable services to its clients, Ekuinas says when contacted.
Asked if it is looking at another merger for the company after the deals with UMW Oil and Gas Corp Bhd and Orkim Sdn Bhd fell through, Ekuinas says: “As a majority shareholder, Ekuinas is constantly evaluating opportunities that will benefit the shareholders of Icon, and those will include potential corporate exercises with other companies.”
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