MARC has affirmed, with Stable Outlook, the AA- rating to Scomi Group Bhd’s (Scomi) RM500 million Medium Term Notes (Notes). The rating reflects the group’s good competitive position as the group has one of the most comprehensive range of products and services for the provision of integrated fluids solutions in the world; its business presence in 35 countries following the acquisition of KMC Oiltools Bermuda Ltd (KMCOB) in July 2004; improving regional profile upon the acquisition of Chuan Hup Holdings Limited’s (CH) entire marine logistics business and offshore support services (via Habib Corporation Berhad or “Habib”). Against the backdrop of high oil prices and new findings of oil fields, offshore activities are expected to surge in the next five years. Moderating the rating, however, are the challenges faced by the group to meet the expected revenue growth.

Through its subsidiaries, the Scomi group is involved in an array of services, encompassing drilling fluids/drilling waste management, marine vessel transportation services, manufacturing of oilfield equipment, oilfield products distribution and offshore support services. Going forward, Scomi’s enlarged O&G related business segment is expected to be the primary revenue driver, contributing more than 90% to the group’s revenue on the back of increasing drilling activities, mounting environmental concerns and stricter government policies on waste discharge worldwide. With a strategy of integrated drilling fluid (DF) and drilling waste management (DWM) approach, Scomi is targeting a global market share of 8-10% by year 2010 through existing established relationship between KMCOB and the national/independent oil companies.

In August 2006, Scomi has proposed to undertake a proposed internal restructuring and refinancing exercise, which may include redemption of part of the existing Scomi Notes with a new issuance of debt. Thereafter, Scomi plans to list its DF and DWM unit, KMCOB on the Singapore Exchange Securities Trading Ltd by the first half of 2007 to fund its international expansion. The listing exercise will be through KMCOB or a Special Purpose Vehicle (SPV) to be incorporated in Singapore, where 30% of its stake would be offered to the public.

The Group continued to experience tremendous growth in revenue, of 81% from RM590.5 million in FY2004 to RM1,068 million in FY2005. Gross profit margin however fell to 25% from 32% in the previous year. Pre-tax profit increased by 151% to RM187.6 million in FY2005. The significant improvement in the profitability of the Group was mainly as a result of the gains arising from the disposal of the Machine Shop Business, Scomi Sdn Bhd and Scomi Transportation Solutions Sdn Bhd to Bell and Order Bhd (now Scomi Engineering Bhd), which amounted to about RM100 million as indicated by the Scomi management. For the first six months of FY2006, Scomi registered total revenue of RM675.4 million and pre-tax profit of RM53.6 million. This represented a significant increase of 42.4% and 26.7% respectively against the previous corresponding period.