Bayu Padu Sdn Bhd - Review - 2007 |
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| Report ID | 2843 | Popularity | 1566 views 106 downloads | |||||
| Report Date | Nov 2007 | Product | ||||||
| Company / Issuer | Bayu Padu Sdn Bhd | Sector | Trading/Services - Oil & Gas | |||||
| Price (RM) |
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| Rationale |
MARC has reaffirmed its ratings on Bayu Padu Sdn Bhd’s (Bayu Padu) RM500 million Istisna’ Serial Bonds (Istisna’ Bonds) and RM100 million Murabahah Commercial Papers/ Medium Term Notes (MCP/MMTN) (cumulatively, Islamic debt facilities) at A+ID and MARC-1ID/A+ID respectively. The outlook on the ratings is stable. Bayu Padu is a wholly-owned subsidiary of SapuraCrest Petroleum Berhad (“SapuraCrest” or “the group”) and is a special purpose vehicle created to facilitate the issuance of the Islamic debt facilities. The reaffirmed ratings reflect SapuraCrest’s strong business profile as the only domestic oil and gas service provider that has ownership of an offshore construction deepwater capable vessel, the Sapura 3000, and its sizable order book amounting to RM5.1 billion as at July 2007. The ratings are however moderated by SapuraCrest’s relatively high gearing arising from continued capital spending, losses incurred by its pipeline facility installation business in FY2007 and cash flow protection measures which are low, albeit improving, for the rating categories. SapuraCrest’s businesses which include the installation of pipeline and facilities (IPF), offshore drilling, marine services and operations & maintenance (O&M) provide revenue diversification. In FY2007, the decline in revenue from the IPF business was offset by higher contributions from SapuraCrest’s offshore drilling, marine services and O&M divisions. IPF contributed approximately 47.3% to SapuraCrest’s revenue in FY2007, followed by marine services (26.8%) and offshore drilling (22.3%). The group’s operating profit margins narrowed marginally to 8.0%, largely due to losses suffered by the IPF division. The division was unable to pass through increases in variable costs to its clients under its fixed rate contracts. The offshore drilling and marine services divisions, meanwhile, generated robust operating profit margins of 26.4% and 13.8% respectively. The 2004-2006 IPF contracts have since been completed and contract extensions worth approximately RM3.2 billion from PETRONAS Carigali Sdn Bhd (PCSB) and ExxonMobil Exploration and Production Malaysia Inc (EMEPMI) were recently secured on improved terms which allow for the mitigation of certain cost increases, thus providing some measure of margins stability, moving forward. For the first nine months of FY2008 (3Q2008), the IPF division registered a profit of RM32.0 million whilst consolidated operating margins at group level improved marginally to 10.5%. The group’s RM5.1 billion outstanding contracts in-hand are expected to provide a stable revenue stream for the next two to three years. The group’s marine assets, particularly the Sapura 3000 and a heavy lift pipe lay vessel (HLPV) which are expected to be delivered and completed by February 2008 and 2009 respectively, provide SapuraCrest with a competitive advantage in bids for both deepwater and shallow water contracts. In addition to the PCSB and EMEPMI contracts, SapuraCrest has also secured two contracts worth approximately RM1.1 billion that will employ the Sapura 3000 up to the third quarter of 2009. Oil and gas service providers, like SapuraCrest, are expected to benefit from the plethora of oil and gas activities amidst record breaking crude oil prices. SapuraCrest’s clients comprise established credit worthy oil majors, thus minimising collection risk. The group’s net cash flow from operations after interest and tax was negative in FY2007 due to high interest expense in relation to debt funding of its investments. Gearing as at FY2007 stood at 1.78 times but declined to 1.1 times in 3Q2008 due to conversion of its USD convertible bonds coupled with higher retention of earnings. The maximum covenanted gearing ratio of 3.0 times under the Islamic debt facilities, net of cash balances, provide significant headroom for further debt leverage. MARC expects the IPF division to demonstrate a sustained recovery from earlier losses as the new contracts facilitate cost recovery through the mitigation of certain cost escalations. Profitability and operating cash levels are expected to turn around, as reflected by its net cash flow from operations of RM3.7 million and improved profitability in 3Q2008. With capital expenditure requirements in respect of new asset acquisition and related business ventures likely to stay high, MARC expects the group’s debt leverage to remain aggressive in the near to intermediate term. The stable outlook assumes an improvement in operating performance in coming quarters and a consequent strengthening in key financial measures. |
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