Maintain BUY and MYR0.16 TP
We are positive on Icon securing a short-term JU contract with decent DCR from ConocoPhillips, following the end of its previous gig (Petrofac) in 4Q21. Overall, we expect higher utilisation for its JU and OSVs, its key earnings driver as offshore capex rises. Icon’s turnaround story has just begun to gain traction. We value the: (i) JU ops at 0.6x EV/ replacement value (9 sen/shr) and (ii) OSV ops at 0.7x PBV, (7 sen/shr). On a combined basis, our MYR0.16 SOP-based TP equates to a PBV of 1x.
Salient details of the USD9.6m rig contract
Icon has received a LOA from ConocoPhillips Sarawak for the charter of its jack-up rig (JU); Icon Caren. The contract, worth an estimated USD9.6m will commence in 2Q22 and the work scope entails drilling 3+1 wells for the client’s 2022 drilling campaign in Sarawak.
Optimising JU’s utilisation remains key
We are positive, but not entirely surprised, by this development. Based on the contract value, it equates to DCR of about USD75-80k (3+1 wells), which appears to be higher than its previous job (Petrofac; USD74k; 8+3 wells) but is within the prevailing market’s rate. We do not rule out the possibility of the contract containing some ‘add-on’ items. That said, the contract tenure (e.3-4 months) is shorter than we initially expected but is not a concern, for we expect high extension/ new charter prospects for its JU over the next 12 months.
A stronger 2022
Our earnings estimates are unchanged, on expectations of a softer QoQ outlook for 4Q21, as seasonal weakness (i.e. monsoon) kicks in but a stronger FY22. Overall, its earnings recovery is tracking to expectation, with its drilling ops continuing to be the Group’s key earnings driver. Maintaining high utilisation for its assets (JU and OSVs) remains its key KPI, followed by its continued cost optimisation exercise, which includes disposal of ageing/ idle OSV assets.