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Tuesday, December 23, 2014

Ekuinas O&G arm sees heavy selling as lockup period ends

PETALING JAYA: On a day when most stocks were on an uptrend on the back of the market gaining 28 points, Icon Offshore Bhd, the oil and gas (O&G) service provider of Ekuiti Nasional Bhd (Ekuinas), saw some heavy selling.
The selling came amidst the end of a six-month lockup period imposed on the promoters, namely, Ekuinas and Icon’s chief executive officer Jamal Yusof from the date of Icon’s listing on June 25.
Ekuinas and Jamal collectively own some 52% of Icon.
Ekuinas’ equity holding in Icon is held via its wholly owned Yayasan Ekuiti Nasional’s two entities, Sempena Focus Sdn Bhd (2.41%) and Hallmark Odyssey Sdn Bhd (42.28%). Jamal owns 5.02% of the company.
The stock closed 19 sen or 19.5% down to 78.5 sen. It was the most active counter of the day, with 68.76 million shares being done.
This is a 58% descent from its initial public offering (IPO) price of RM1.85. At current levels, the stock is also trading at a price earnings ratio (PER) of 8.32 times its 2014 earnings.
Analysts when contacted feel that Icon shares could continue to suffer from overhang issues until Ekuinas and probably Jamal make clear their long-term strategy for the company.
“While the downside may be limited due to its single-digit valuation, the upside will definitely be capped by the overhang issues,” said an analyst.
As Ekuinas is a private equity company with a time horizon of some three to five years, and given that its investment in Icon started in 2012, this implies that the Government-funded firm may potentially exit the group by 2017.
“But that does not have to be the case. It will all depend on the kind of valuations Ekuinas has on Icon. Why should they sell when the market does not favour O&G stocks,” said a fund manager.
In June, Ekuinas successfully listed Icon, one of its investee companies, selling a 44% stake at what appeared to be a toppish valuation of 24 times PER (based on its IPO price of RM1.85 and earnings per share of 7.61 sen last year).
For the third quarter ended Sept 30, 2014, Icon’s net profit was down 16.89% to RM18.95mil on the back of a 22.7% decrease in revenue to RM79.75mil.
After Icon’s listing, Maybank Investment Bank Bhd had enacted some price stabilisation action to support its share price.
During the period between June 25 and July 24, Maybank had undertaken stabilising actions, where a total of 43.67 million shares were purchased at a price range of between RM1.80 and RM1.85. The last purchase was made on July 24 at RM1.80.
Icon is the largest pure play offshore support vessel (OSV) provider in Malaysia and one of the largest in South-East Asia (SEA) by fleet size, according to an Infield Systems report.
It owns and operates 32 Malaysian-flagged vessels and has one of the youngest vessel fleets in the region, with an average age profile of five years (SEA’s industry age average is 11 years).
Icon can trace its early history to Tanjong Offshore Bhd. In 2012, Ekuinas bought Tanjong Offshore’s marine vessel service arm, Tanjung Kapal Services Sdn Bhd, for RM220mil.
However, the OSV sector is now undergoing an oversupply situation, especially among the smaller players, where margins have been coming down. The sector is expected to face more pressure next year in the face of lower oil prices and reduced expenditure by Petroliam Nasional Bhd (Petronas), which on average spends some RM60bil a year.
Petronas has said that it would cut expenditure by between 15% and 20% next year in line with the lower oil prices.

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