#Going for Listing* Icon Offshore makes timely debut

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ICON Offshore was to be listed on the Main Market of Bursa Malaysia on June 25 (at the time of writing), becoming Malaysia’s largest public-listed pure offshore support vessel (OSV) provider. The company is the result of a merger between Tanjung Kapal Services Sdn Bhd (TKS) and OMNI Petromaritime Sdn Bhd in 2012, after government-linked private equity firm, Ekuiti Nasional Bhd (Ekuinas), acquired the former for RM260 million.

Icon Offshore will be led by group CEO, Dr Jamal Yusof, who is also a co-founder of OMNI. Captain Hassan Ali, former CEO of TKS, will serve as deputy CEO and Rahman Yusof will be group chief operating officer.

Public Investment Bank Bhd sees the listing as timely, as it is driven by the continuous stimulation of the oil and gas (O&G) landscape by Petroliam Nasional in the region, and supported by increased activities in the industry and a rise in upstream expenditure.

“We believe [that] Icon Offshore’s listing is timely, considering the ongoing opportunities in Malaysia and the region,” the bank says in an IPO note on the company.

At an offer price of RM1.85, the IPO was oversubscribed by over 16 times. Raising a total of RM944.92 million, it will be the second largest IPO in Malaysia, after Boustead Plantations Bhd, which debuts on the local bourse the next day.  

Icon Offshore’s IPO involves the sale of up to 510.7 million shares, representing about 43.49% of its enlarged issued and paid-up capital. It comprises the public issue of 221.75 million new shares and an offer for sale of 289.02 million shares by its existing shareholders, which would raise RM410.23 million and RM534.69 million respectively.

Proceeds from the public issue will mainly be used for the expansion of the company’s vessel fleet (40.1%), repayment of bank borrowings (37.1%), working capital needs (17.8%) and listing expenses (5%).

By the first quarter of FY2016, Icon Offshore aims to increase its fleet size to 39 vessels, including two anchor handling tug supply vessels, two accommodation work barges, two platform supply vessels and one fast crew boat.

Its fleet of 32 OSVs with an average age of five years, is currently Southeast Asia’s largest. Jasa Merin (Malaysia) Sdn Bhd has 19 and Perdana Petroleum Bhd 16.

As at April 30, 2014, the company had an order book totalling RM700 million, of which RM502.4 million or 71.8% were firm contracts. Long-term contracts of three to five years are estimated to account for as high as 80.6% of its order book.

According to Hong Leong Investment Bank, Icon Offshore is trading at a price/earnings to growth (PEG) ratio that is significantly below its peers’, despite its high price-earnings ratio (PER).

“The company is trading at 20 times FY2014 PER and 14 times FY2015 PER, premiums compared with its peers in the OSV sector, which averaged 13 times FY2014 PER and 11 times FY2015 PER.

“However, after taking into account the strong earnings growth prospects, the company is trading at 0.5 times FY1204 PEG, which is significantly below that of its peers,” says the research house.

The PEG ratio is used to determine a stock’s value, after factoring in the company’s earnings growth. It is viewed as a better measure than the PER. A low PEG ratio signifies the undervaluation of a stock, given its earnings performance.

Icon Offshore currently has a relatively high adjusted net gearing of 1.33 times, but RHB Investment Bank expects that to improve to 0.5 to 0.7 times, taking into account the IPO proceeds, giving the company room for the purchase of more high-end vessels.

However, Icon Offshore does not have a fixed dividend policy for its shareholders. According to its prospectus, dividend payout will be based on active capital management, taking into account the levels of cash, gearing and retained earnings and debt profile, expected financial performance, working capital requirements, capital expenditure and investment plans.

This story first appeared in The Edge weekly edition of June 23-29, 2014.