Icon Offshore Expected To Reject Unattractive MGO Offer At RM0.635 Per Share Price: Kenanga

Liannex Maritime Sdn Bhd (Liannex Maritime) has triggered a mandatory general offer (MGO) for ICON shares at RM0.635 and  warrants at RM0.001 on the heels of its acquisition of a 50.2% stake in ICON.

Kenanga Invest Bank (Kenanga), in its Company Update today (Mar 27) said they believe the offer prices are unattractive and maintains their forecasts, TP of RM0.80 and rationalise their call to REJECT OFFER (from OUTPERFORM).

Liannex Maritime, a private company owned by substantial  shareholders of YINSON (OP; TP: RM3.41)  Lim Han Weng and Bah Kim Lian, has triggered an MGO for ICON shares and  warrants it has not already owned on the heels of its acquisition of a  50.2% stake in ICON from state-owned private equity firm Equinas for  RM172.7m or RM0.635/share. 

The MGO is for:

(i) 269.6m ICON shares at an offer price of RM0.635/share (ii) 130.9m warrants at a cash offer price of RM0.001 per warrant.

The offer price translates to 7.8x FY25F P/E, which is at a discount to  the median forward PER of 10.2x observed amongst Malaysian and  Singaporean-listed OSV companies during the 2010-2014 upcycle. 

In terms of asset value, the deal values ICON at 0.9x FY23 PBV, which  is at a discount to the 2x for Malaysian and Singaporean-listed OSV  companies during the 2010-2014 upcycle.

However, Kenanga is aware that  the PBV recorded back in 2010-2014 was significantly higher due to the  peak OSV market and typically PBV is more relevant for valuation  during downcycles. To compare, PERDANA’s FY23 PBV is at 1x, which  is 10% higher. 

The offeror intends to maintain ICON’s listing status

Given that the  offeror’s controlling shareholders are in the oil & gas business, they  may be able to add value in terms of helping ICON to secure more  charter contracts and optimize its fleet.

Forecasts: Maintained. 

Valuations. Kenanga maintains their  TP at RM0.80 pegged to an unchanged  CY25F 10x fully-diluted PER. This valuation aligns with the median  forward PER of 10.2x observed amongst Malaysian and Singaporean listed OSV companies during the 2010-2014 upcycle. There is no  adjustment to their TP based on ESG given a 3-star rating as appraised  by them.

Investment case: Kenanga likes ICON due to: (i) it being a beneficiary of the  incoming upcycle of the local OSV market as the supply deficit of  vessels persists, (ii) its improving balance sheet which leaves room for  future asset expansion, and (iii) its stable cost base which entails  significant margin expansion on higher charter rates.

Kenanga rationalised their call to REJECT OFFER from OUTPERFORM.

Risks to Kenanga’s call include: (i) premature end to upstream services industry upcycle following a dip in oil prices, (ii) weaker than expected  vessel utilisation due to unexpected breakdowns, and (iii) inability to  renew vessel charters with rates more consistent with the current spot  charter market. 

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