Maybank IBG has upgraded Icon Offshore to buy, this comes from the group’s positive initiatives, including plans to undertake capital reduction and share consolidation (5-to-1) exercises is a sensible move, with a view of paying dividends in the future and reduce trading volatility along the way.
The investment banks also noted that there would be a name change thereafter. Undertaking an M&A deal that meets its
criteria – sustainable earnings/cashflows and less cyclicality would be a key catalyst. TP (pre-deal) is kept unchanged, pegged to 10x FY23 PER.
Salient details of the corporate exercises
Icon plans to undertake a: (i) capital reduction & (ii) share consolidation exercises. The former is to eliminate the Group’s past accumulated losses, in order to facilitate the declaration of dividends in the future. The latter will involve the consolidation of 5 shares into 1 (from 2.7b shares to 541.3m shares) to enhance its capital structure and reduce volatility in the share’s trading. These exercises are expected to be completed by 3Q23.
A stronger FY23
The FY23-24E earnings estimates of MYR33m-38m are unchanged, based on a sustained utilization of 68% and DCR of MYR30.4k in FY23; a conservative assumption. Maybank IB says realistically it expects Icon to post an improved YoY earnings performance in FY23 despite the absence of its drilling ops contribution. The YoY strength will be underpinned by
improved operational performance at is OSV division, on higher DCRs and utilization. Continued cost optimisation (disposal of ageing/idle OSVs, opex/overheads) will further fuel its bottomline.
Icon is looking at several business proposals to replace the income loss from its exit from the drilling ops. To qualify, the new business unit will need to offer stable income/cashflows, similar to/higher than its drilling ops and at reasonable valuations. The deal conclusion schedule has been extended beyond end-1Q23. In the event a deal is not forthcoming over the next 12M, Icon can be a constant dividend paying stock in the interim (post the corporate exercises). Maybank expects Icon to generate ~MYR100m p.a. in EBITDA.
