The group is looking for new businesses that will offer stable income or cash flows, similar to or higher than its drilling operations, the bank said, adding Icon’s M&A criteria will increase sustainable earnings and reduce cyclicality.
Yesterday, Icon proposed to reduce its issued share capital by RM830 million to eliminate the group’s accumulated losses.
This came along with a proposal to consolidate every five existing ordinary shares in the group or held by its shareholders.
Icon, which is harbouring RM822.41 million in losses as of Dec 31, 2022 will have retained earnings of RM7.19 million after the proposed share capital reduction. The balance, if any, will be credited to the retained earning account of the group.
Last Tuesday the group posted a 3,200% increase in fourth quarter profit (Q4 FY2022) to RM153.63 million. Despite this, their counter crashed 25% to 9 sen the following day.
The surge in Q4 profit was due to a RM196.35 million net gain from disposal of its jack-up rig to Saudi Arabia-based ADES Arabia Holding.
Icon is an oil and gas service provider, specialising in offshore support vessels (OSV) and drilling rigs. The group operates 20 OSVs and one drilling rig.
Brighter times ahead?
Maybank IB said the reduced share capital is a “sensible move”, with a view to paying dividends in the future and reducing trading volatility along the way.
“Icon can be a constant dividend-paying stock in the interim (post the corporate exercises). We expect the company to generate RM100 million per annum in earnings before interest, taxes, depreciation and amortisation (Ebitda).”
The proposed capital reduction is intended to address the past accumulated losses of the group and the declaration of dividends in the event the company has retained earnings in the future.
The proposed share consolidation is expected to improve the company’s share capital structure and reduce the volatility of the trading price for the shares.
The proposals are subject to the approval from Icon shareholders at its forthcoming EGM, Bursa Malaysia Securities, the court, and group creditors, and is expected to be completed by the third quarter of this year.
As of Feb 13, 2023, Icon’s issued share capital was about RM1.15 billion comprising 2.71 billion shares and outstanding Warrant A totalling 654.52 million.
Earnings performance improvement
Maybank IB realistically expects Icon to post an improved year-on-year earnings performance in FY2023 despite the absence of its drilling operations contribution.
“The y-o-y strength will be underpinned by an improved operational performance at its offshore supply vessels division, on higher daily charter rates and utilisation,” it added.
Maybank IB has maintained its target price (TP) of 10 sen per share, with a 12-month TP of 12 sen.
The new announcements caught the eye of investors today as Icon was one of the most active counters with 84.05 million shares changing hands.
At the close of trading today, its share price was unchanged at 9.5 sen, giving it a market capitalisation of RM270.65 million.