MARC has affirmed its rating of
AAA(fg) on KMCOB Capital Berhad’s (KMCOB) guaranteed
serial bonds (Guaranteed Serial Bonds) of up to RM320 million with a stable
outlook. The rating and outlook are premised on the unconditional and
irrevocable financial guarantee provided by Danajamin Nasional Berhad
(Danajamin), which carries MARC’s insurer financial strength rating of
AAA/stable.
As the funding vehicle of
parent Scomi Oilfield Limited (SOL), KMCOB’s repayment capacity is fully
dependent on the SOL group which is involved in providing drilling fluids (DF)
and drilling waste management (DWM) services for the oil and gas industry. An
indirect 65.7%-owned subsidiary of Scomi Group Berhad, SOL has an established
market position domestically in the DF and DWM segments with a market share of
50% and 45% respectively. MARC notes that SOL has also been able to sustain its
business profile on the back of an increased number of operational drilling
rigs in Asia Pacific and the Middle East that offset the decline in domestic
operating rigs. The group’s order book stood at US$1.61 billion as at end-June
2014, of which US$972.9 million or about 60.4% is domestic. SOL’s fairly large
order book is expected to provide earnings visibility until 2017.
MARC also views SOL’s
geographically diversified order book as able to reduce susceptibility to the
oil majors’ capex spending in any one region. In the near term, SOL’s domestic
business prospects in the DF and DWM segments should continue to be supported
by PETRONAS’ planned capex programme to sustain oil production. MARC observes
that SOL’s financial performance has steadily improved in recent years with
higher profit generation, improved cash flow coverage and lower leverage
levels.
For the financial year ended
March 31, 2014 (FY2014), revenue and pre-tax profits increased by 20.8% and
44.7% respectively to US$330.9 million and US$35.1 million from the annualised
15-month financial period ended March 31, 2013 (FP2013: US$342.4 million;
US$30.4 million). The improved performance benefited from overall higher topline
and cost containment efforts as well as higher margin in SOL’s operations in
Russia and West Africa which offset the weaker performance in Malaysia. SOL’s
Malaysian operations accounted for 23.2% and 27.5% of revenue and pre-tax
profits respectively in FY2014. Cash flow from operations (CFO) stood higher at
US$44.3 million in FY2014 compared to US$20.9 million in FP2013, primarily
supported by the increase in earnings but moderated by higher working capital
requirements. With capex spending remaining flat at US$16.7 million in FY2014
(FP2013: US$20.3 million), free cash flow (FCF) rose to US$27.8 million
(FP2013: US$3.5 million). SOL’s CFO interest and debt coverage ratios improved
to 6.47x and 0.26x respectively as at end-FY2014 (FP2013: 2.39x and 0.09x respectively).
As at end-FY2014, MARC notes a
further moderation in SOL’s leverage position as reflected by the lower
debt-to-equity (DE) ratio of 0.80x (FP2013: 0.89x, FY2011: 1.63x) and net DE
ratio of 0.58x (FP2013: 0.78x, FY2011: 1.35x). SOL’s cash balances are
sufficient to meet the upcoming debt payments of RM85 million in December 2014
under the rated programme. MARC expects the recent improved operating
performance and cash flow generation to be sustained in the near term. This
would support SOL’s capex requirements and debt repayment obligation over the
next 12 months.
Nonetheless, as the rating and
outlook hinges on the irrevocable and unconditional guarantee provided by
Danajamin, any changes on KMCOB’s rating will be primarily driven by a revision
of Danajamin’s credit strength.
Contacts:
Oo Chin Kai +603-2082 2260/ chinkai@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.
November
21, 2014
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