This article first appeared in Corporate, The Edge Malaysia Weekly, on June 6 - 12, 2016.
IF its managing director Amir Hamzah Azizan is to be believed, Icon Offshore Bhd’s prospects are bright and the company is likely to play a key role in the consolidation of the offshore support vessel (OSV) segment of the oil and gas (O&G) sector.
He says Icon will expand its operations regionally, become a market leader in the OSV space and even possibly expand into new asset classes to support the O&G segment.
“Definitely a regional play. It is never enough to look only at the home base,” he says.
While Amir paints a pretty picture of the company’s prospects, Icon just announced its second consecutive quarterly loss late last month.
It suffered a net loss of RM5 million on revenue of RM51.83 million for the quarter ended March. For the final quarter of FY2015, net losses were RM376.89 million on RM65.3 million in revenue.
As at end-March this year, Icon had RM35.85 million in cash. Its long-term debt amounted to RM501.47 million and short-term borrowings RM163.16 million. Its accumulated losses stood at RM188.09 million.
A saving grace for Icon could be its strong controlling shareholder. Ekuiti Nasional Bhd, the state-controlled private equity (PE) firm, controls 42.57% of Icon’s stock. Other substantial shareholders include Lembaga Tabung Haji with 8.43% equity interest.
On whether or not the O&G industry has bottomed out, Amir says, “Well, I think there have been some good signs. When I joined the company in March, in the first quarter of the financial year, we saw the oil price at its lowest point of US$27 per barrel. By April, [oil was at] US$40 and now it is in the US$50s. The industry is reacting now, in the sense that, maybe the market has bottomed out a bit,” he says.
Singing the same tune as Amir, Maybank Investment Bank’s T J Liaw says in a report on Icon late last month, “We expect improved 2Q16 earnings on higher asset utilisation. The OSV market remains challenging but is in its trough. Icon aims to be resilient in such times and targets to be ahead in M&A activity, when opportunity arises. Its M&A prospect is a key standout, a rerating catalyst once it crystalises.”
He has a “buy” call based on valuations and M&A perspectives, ahead of a cyclical recovery. And he says his target price of 42 sen is based on one times enterprise value over replacement value.
In early May, Icon announced a RM42 million contract from ExxonMobil Exploration and Production Malaysia Inc for the supply of two straight supply vessels for two years with an option for a year-long extension.
Liaw adds that with the two new contracts secured last month, Icon’s utilisation rate of its vessels in the second quarter of the year will be above the break-even 50%, and more than the 45% it reached in the first quarter.
Maybank assumes an overall OSV utilisation rate of 53% for this year and 65% for 2017, which would indicate that the worst is over for Icon.
While Icon may bag new jobs and increase its utilisation rate, daily charter rates of OSV’s remain depressed, which could continue to weigh on its earnings. Spot market and long-term charter rates have fallen considerably to US$1 to US$1.10 per bhp per day from US$1.20 a year ago.
Nevertheless, Maybank forecasts that Icon will turn the corner and register a net profit of RM6.8 million for the current financial year, on the back of revenue of RM254.6 million. In FY2017 the bank-backed research outfit has Icon’s net profit pegged at RM27.4 million from RM327.1 million in sales.
Interestingly, Liaw refers to Icon as an “M&A hotbed” and cites Amir’s association with Petroliam Nasional Bhd (where he had worked from 2000 until recently), the oil company’s call for consolidation and Ekuinas’ role as a PE investor, as among the factors for its positive outlook.
However, he says, “Size matters, after all, but it needs to be complemented with returns and profitability.”
‘We will build a brand new industry’
Amir Hamzah Azizan has been in the oil and gas (O&G) industry for 27 years. Earlier this year, he left Petroliam Nasional Bhd (Petronas) to become managing director of Icon Offshore Bhd, a company controlled by Ekuiti Nasional Bhd (Ekuinas). The move caught many by surprise. In a candid interview with The Edge, Amir explained the move and shares his views on the local O&G industry. Here are excerpts.
The Edge: Why did you join Icon?
Amir Hamzah Azizan: To be fair, I was very comfortable and enjoying myself in Petronas, I was still in the midst of running the lubricant business. There’s never a time when someone thinks that he has reached a point and say, ‘I’m done, there’s nothing left for me to do here’, because there’s always something to do.
And here comes Ekuinas, which says, would you now come and join us? The reality is that it (Icon) has potential. It is going to face a lot of headwinds because we have seen the oil price move the way it has ... what better time for you to shape the industry?
You talk about consolidation. Is there any mandate to consolidate the O&G industry, or is it your own direction for the company?
When you talk about a mandate, what do we mean by that? Does it mean the government tells me, I direct you to do it? There’s no such thing.
We will build a brand new industry for Malaysia and that’s an interesting proposition. Not saying that it’s easy … it’s difficult, but I’ve got quite a supportive shareholder.
You hope for Icon to lead the consolidation. Do you see any room for entrepreneurs to be involved in running the company?
I think it’s possible. I don’t think organisations can run without some sense of entrepreneurship. The entrepreneurial spirit must be there.
Would consolidation entail Icon having the whole spectrum for offshore support vessel (OSV) services?
I think today, consolidation play is very useful because most of the players are quite subscale at this point. Scale gives you the ability to have a wider range of vessels, more resources to introduce better systems and processes and all the good things that come with scale. But scale also creates challenges. You must be good in management … a lot of moving parts.
Will Icon move from predominantly shallow water OSVs?
It is within our scope to look at, but in order for me to make the next leap, I have got to be sure I can integrate and hold the process well.
Isn’t the recent increase in oil price to US$50 a dampener for the consolidation?
Well, at US$50 oil, I don’t think anybody is rolling in money. So the logic for consolidation is still there because at the end of the day, instinct tells you that you have to get bigger because you need to be able to support the majors in a different playing field. When you had the majors all operating at US$100 oil, you had the rich man’s disease, right?
When you’re rich, you drop a dollar, you drop fifty cents, you don’t pick it up … you just walk away, it’s too much of a problem picking it up right? When you are a poor man, you will dig wherever you are, looking for pennies … even in cracks. That’s where we are.
I think everybody whom we have broached the idea to would like to consider it ... but I won’t say we are in detailed negotiations or anything of the like, but at least I have the alignment. No one has come back and told me it’s stupid (to consolidate).
So where does Petronas come in?
It can create an environment to help. I’m not saying Petronas is going be asked to put in unreasonable catalysts. There’s enough competition to keep everybody honest. But at least for the people who combine and do something — offer (them) a longer-term contract. That allows them to fund the business better and gives them stability.
What is your definition of scale?
For the first phase, maybe call it the next two or three years, getting to a level of 50 to 80 ships. It will mean you have to have a base fleet here, but it will also offer you enough excess to play significantly in other regional markets that you want.
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