Icon Offshore Bhd
(Sept 7, 31 sen)
Maintain sell with an unchanged target price (TP) of 23 sen: Icon Offshore Bhd’s (Icon) offshore support vessel (OSV) utilisation was at a lower 64% in the second quarter ended June 30 of financial year 2015 (2QFY15), a decline of 6 percentage points quarter-on-quarter (q-o-q);  a fall of 25 percentage points year-on-year, (y-o-y) and 61% in 1HFY15 (-20 percentage points y-o-y). 

Of its 33 OSVs, 70% was on charter (15 long-term and eight spot contracts), 10 units were idle. Considering the weak market conditions, it will delay delivery of its fast crew boat vessel (under construction) by a further six months to 1QFY16, from 3QFY15 initially. Outstanding orders stand at RM751 million (RM503 million firm charter and RM244 million extension, as well as RM4 million spot), of which RM323 million will be recognised in 2016.

With Petroliam Nasional Bhd’s (Petronas) capex or opex reduction exercise underway, demand for OSVs is set to soften as just 14 rigs are expected to operate in Malaysia by end-2015 versus 39 units in 2014. 

Given the scarcity of jobs available, Icon stated that Petronas will give preference to OSVs (i.e. anchor handling tug supply (AHTS) vessel of less than 100 tonnes, straight supply vessel owned by Malaysia Offshore Support Vessels Association members to support local players over foreign-flagged vessel operators/agents.

Icon plans for a worst-case scenario of US$50 (RM216) per barrel oil price over the next five years. Overall, Icon is on a cost-conscious drive. It targets competitive bidding via a robust cost review and the delayed delivery of OSVs under construction to conserve cash flows.

Early termination of OSV contracts is the biggest risk to Icon’s operations for it affects utilisation. Conservation of cash flow is critical in this challenging time. New contracts with new daily charter rates (RM25,000 for a 5,000 AHTS versus RM30,000 to RM32,000 previously) will only break even. Downside risks to earnings remain, thus our “sell” call. — Maybank IB Research, Sept 4

This article first appeared in digitaledge Daily, on September 8, 2015.