Icon Offshore: Last week, Lim Han Weng made a purchase at an incredibly low valuation.

In its latest quarterly results, Icon posted a core loss of RM14 million (net profit minus reversal of impairment and unrealized gains). However, many investors overlooked its impressive cash flow generation, as outlined below:

Icon and other Offshore Support Vessel (OSV) players are still reporting low profits due to their vessels being tied to long-term contracts with Petronas that were signed many years ago, during Petronas’ austerity period following the 2015 oil price crash. This is set to change in the 2nd half of 2024 when these contracts expire and are expected to be renewed at current market rates, significantly higher than the rates in the old long-term contracts. Icon’s profits are expected to surge from the 2nd half of 2024, just 3 months away.

In 2023, Icon generated RM80 million in operating cash flow. Icon’s operating cash flow for 2024 and 2025 is projected to reach RM150 million and RM178 million, respectively. Within 2 years, Yinson’s boss, who bought into Icon, can potentially recover almost all his initial investment!

Assuming a 2025 net profit forecast of RM44 million and using the 15-20x PE multiple at which OSV players traded during the boom years of 2013 and 2014, Icon should be valued at RM1.22 – 1.62 per share. With today’s share price at RM0.80, Icon has an upside of 53-103%.

Investors should consider targeting Icon-WA. With 3 more years to expiry and at Icon’s valuation of RM1.22 – 1.62, Icon-WA should be valued at RM0.395 – 0.795. With today’s warrant price at RM0.20, Icon-WA has an upside of 98-298%.

Icon also pays hefty dividends, having paid 5 sen/year for the last 2 years, more than any other publicly listed OSV player in Malaysia. It’s only a matter of time before the share price and warrant price of Icon significantly increase to reflect the explosive earnings growth of the company and industry, which will begin to manifest in the 2nd half of this year.