Tuesday, Feb 27, 2001
Malaysian Rating Corporation Berhad (MARC) has reaffirmed the MARC-1 (bg) short term rating in respect of MHS Aviation Sdn Bhd’s (MHSA) RM70 million Guaranteed Revolving Underwritten Facility (GRUF). The reaffirmation of the rating reflects the unconditional and irrevocable guarantee provided by Malayan Banking Berhad that considerably enhances the credit rating of the GRUF beyond that of MHSA’s stand-alone risk profile.
MARC has nonetheless taken into consideration the unique interdependency of the company’s operating environment with that of the oil and gas industry, and the company’s continued dominant position in servicing this industry. These factors are, however, moderated by its high dependency on a single industry, namely oil and gas, from which it derives over 80% of its operating revenue.
MHSA’s principal activity is the provision of helicopter charter services to oil and gas companies on contract and ad-hoc basis. Long-term contracts have been secured with Esso Production Malaysia Inc., PETRONAS Carigali Sdn Bhd and Sarawak Shell Sdn Bhd. Currently, MHSA operates its fleet of 18 helicopters and two newly acquired fixed-wing aircraft out of three main bases; Kertih, Miri and Sg. Besi.
MARC believes that the recovery of crude oil and natural gas prices from their lows in 1998 will improve the outlook for the oil and gas industry. Oil prices have escalated from US$20 per barrel in November 1999 to US$36 in October 2000, but is expected to ease to between US$22 to US$28 per barrel in the near future.
Consequently, exploratory activities are also expected to continue to rise following the increase in the number of Production Sharing Contracts (PSC) awarded by Petronas. The increase in activities in both the exploration and production of oil and gas have directly benefited MHSA, as it continues to operate in a protected environment with very limited competition. High capital cost and extremely high and demanding operational requirements remain as the main barriers to entry. Since the last review undertaken by MARC, MHSA has been awarded several short term and long term contracts, both local and overseas.
As such, MHSA’s future cash flow should be further augmented through potential contracts to be secured, notwithstanding its ongoing expansion strategy into other engineering services like the aircraft maintenance business.
MHSA managed to record its second consecutive year of profit before tax of RM10.4 million in FY99 despite the 10.8% decline in revenue. The primary factor was the significantly lower interest costs burden stemming from the company’s reduced indebtedness and the low interest environment. On the same note, cash flow from operations interest coverage also strengthened to 3.3 times; above the previous three-year average of 1.7 times. The cash flow coverage ratios are projected to gradually increase over the remaining period of the GRUF, supported by a relatively stable cost structure. MHSA’s debt leverage has been trending downwards for the past three years from a high of 5.5x in FY97 to 2.1x in FY99. As at end-October 2000, the ratio further improved to 1.8x, reflecting the effect of the reduction in its accumulated losses over the period.
Based on the favourable 10-month period interim results and its FY2001 forecast, coupled with the settlement of the US dollar denominated debt in December 2000, MARC expects both its operating margin and cash flow protection measures to strengthen in FY2000 and FY2001.
MARC has nonetheless taken into consideration the unique interdependency of the company’s operating environment with that of the oil and gas industry, and the company’s continued dominant position in servicing this industry. These factors are, however, moderated by its high dependency on a single industry, namely oil and gas, from which it derives over 80% of its operating revenue.
MHSA’s principal activity is the provision of helicopter charter services to oil and gas companies on contract and ad-hoc basis. Long-term contracts have been secured with Esso Production Malaysia Inc., PETRONAS Carigali Sdn Bhd and Sarawak Shell Sdn Bhd. Currently, MHSA operates its fleet of 18 helicopters and two newly acquired fixed-wing aircraft out of three main bases; Kertih, Miri and Sg. Besi.
MARC believes that the recovery of crude oil and natural gas prices from their lows in 1998 will improve the outlook for the oil and gas industry. Oil prices have escalated from US$20 per barrel in November 1999 to US$36 in October 2000, but is expected to ease to between US$22 to US$28 per barrel in the near future.
Consequently, exploratory activities are also expected to continue to rise following the increase in the number of Production Sharing Contracts (PSC) awarded by Petronas. The increase in activities in both the exploration and production of oil and gas have directly benefited MHSA, as it continues to operate in a protected environment with very limited competition. High capital cost and extremely high and demanding operational requirements remain as the main barriers to entry. Since the last review undertaken by MARC, MHSA has been awarded several short term and long term contracts, both local and overseas.
As such, MHSA’s future cash flow should be further augmented through potential contracts to be secured, notwithstanding its ongoing expansion strategy into other engineering services like the aircraft maintenance business.
MHSA managed to record its second consecutive year of profit before tax of RM10.4 million in FY99 despite the 10.8% decline in revenue. The primary factor was the significantly lower interest costs burden stemming from the company’s reduced indebtedness and the low interest environment. On the same note, cash flow from operations interest coverage also strengthened to 3.3 times; above the previous three-year average of 1.7 times. The cash flow coverage ratios are projected to gradually increase over the remaining period of the GRUF, supported by a relatively stable cost structure. MHSA’s debt leverage has been trending downwards for the past three years from a high of 5.5x in FY97 to 2.1x in FY99. As at end-October 2000, the ratio further improved to 1.8x, reflecting the effect of the reduction in its accumulated losses over the period.
Based on the favourable 10-month period interim results and its FY2001 forecast, coupled with the settlement of the US dollar denominated debt in December 2000, MARC expects both its operating margin and cash flow protection measures to strengthen in FY2000 and FY2001.