Maybank IB said it came away positive post meeting with the management of Icon Offshore and has subsequently raised its earning forecast +159%/+276% due to its higher blended DCR assumption of MYR45.0k/53.5k and increased EBITDA margin assumption.
The majority of Icon’s fleet (18 OSVs in total) did not benefit from the vast DCR hike throughout the last few years as the group has locked in LT contracts: 11 OSVs chartered to PETRONAS under the ILCT program in 3Q22 at relatively low DCRs; (ii) 2 OSVs in Brunei in March 2021 for 6+1+1 years; 1 OSV to Brunei Shell Petroleum in May 2021 for 1.5+1+1+1+1 years. Unlike its industry peers that gained from high spot rates over the past 2 years, we believe that Icon will only begin to enjoy the uptick in DCRs when it renews its contracts with PETRONAS for 11 of its OSVs now under the ILCT program in 3Q24. This will make Icon a laggard OSV offering strong earnings growth potential as it aims to continue its modus operandi in the LT OSV chartering business, instead of indulging in the spot market; this also ensures earnings longevity
Based on Icon’s low capex business model mainly for maintenance and dry-docking); (ii) manageable debt repayment obligations; and (iii) improving net cash flows post the LT contract renewals for 11 (out of 18) of its OSVs in 3Q24 on higher charter rates, the house believes the group will be able to, at least, maintain a 5sen DPS annually, which has been penciled into the estimates. This translates into a dividend yield of 7.5%.
The revised forecasts now assumes a blended average DCR of MYR38.5k/ 45.0k/53.5k and flattish 83-85% utilisation rate for FY23-25E.The hoise project a net profit growth of >5x in FY24E and a further 83% in FY25E, implying a monumental 2-year (FY23-25E) CAGR of 204%.
