ICON's 1QFY24 results disappointed due to lower-than- anticipated vessel utilisation. Its 1QFY24 core net loss widened YoY on increased vessel downtime. We cut our FY24-25F net profit forecasts by 56% and 16%, respectively, reduce our TP by 13% to RM0.70 (from RM0.80) and rationalise our call to MARKET PERFORM from REJECT OFFER.

ICON disappointed with a core loss of RM21.4m in 1QFY24 (excluding RM2.2m impairment of receivables), vs our full-year net profit forecast of RM28.9m and the full-year consensus net profit estimate of RM22.6m. The variance against our forecast came largely from lower-than-anticipated vessel utilisation on extended maintenance times. No dividends were declared for the quarter.

YoY, its revenue declined by 30% in 1QFY24 on lower vessel utilisation of 50% (vs. 73% a year ago) primarily because of higher vessel downtime with maintenance taking longer than usual. Coupled with additional cost incurred in relation to chartering third-party vessels to fill the gaps and the general cost inflation arising from the industry’s tight supply-chain situation, its core net loss widened.

QoQ, its topline declined by 28% affected by lower vessel utilisation due to extended maintenance durations. Similarly, due to additional cost incurred and the general cost inflation, its core net loss also widened despite lower finance cost.

Outlook. While we continue to be positive on the outlook for local offshore support vessel (OSV) market due to strong demand amidst a supply crunch, ICON may not be able to capitalise on this as its vessels may be prone to be out of service due to the overall old age of its fleet.

Forecasts. We cut our FY24-25F earnings forecasts by 56% and 16%, respectively, as we lower our vessel utilisation assumption to 75% and 83% (from 79% and 85% previously).

Valuations. Correspondingly, we reduce our TP by 13% to RM0.70 from 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.

Investment case. We like ICON due to: (i) it being a beneficiary of the incoming upcycle of the local OSV market, (ii) its strengthening balance sheet, and (iii) its stable cost base which entails significant margin expansion on higher charter rates. However, we are concerned about weak vessel utilisation in the near term. We rationalise our call to MARKET PERFORM from REJECT OFFER.

Risks to our 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 favourable rates.

Source: Kenanga Research - 24 May 2024