Wednesday, Jul 26, 2000
MARC’s reaffirmation of MHS Aviation Sdn Bhd’s (MHSA) rating reflects the unconditional and irrevocable guarantee provided by Malayan Banking Berhad that considerably enhances the credit rating of the Guaranteed Revolving Underwritten Facility (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 expected continued dominant position in servicing this industry.
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, PETRONAS Carigali Sdn Bhd and Sarawak Shell Sdn Bhd. MHSA operates its fleet of 18 helicopters out of three main bases; Kertih, Miri and Subang.
On 4th June 1999, the management of MHSA completed the management buyout of the company from Malaysian Helicopters Services Berhad, with DRIR Equities Sdn Bhd emerging as the new major shareholder of MHSA.
MARC believes the recovery of crude oil and natural gas prices from their lows in 1998; the country’s general economic recovery, and the diminishing threat of global recession will improve the outlook for the oil and gas industry. The current worldwide stockpiles which are at a 10-year low will lead to an increase in exploration and production activities over the next few years.
Operating in a protected environment with limited competition, MHSA will benefit directly from the increase in both exploration and production activities. High capital costs and exacting operational requirements of clients remain as the barriers to entry into the industry.
Over 80% of operating revenue is derived from helicopter charter services to the oil and gas companies. While contracts with major clients are on a long-term basis, increased joint exploration efforts between PETRONAS and the oil majors would lead to a reduction in helicopter requirement. This was the case under the long-term charter contract with Esso Production Malaysia Inc. The adverse effect on MHSA’s revenue would, nevertheless, be correspondingly offset by its lower operating costs.
The long-term contracts comprise 80% on average of revenue. Monthly standing charges (fixed charges) under these contracts introduce an element of stability to the revenue stream. Short term contracts mainly cover exploratory activities and are, therefore, unpredictable as a source of revenue.
MHSA managed to record its second consecutive year of profit (1999 pretax profit RM10.45 million) despite a 10.8% decline in revenue. The main contributory factor was the significantly lower interest costs stemming from the company’s reduced indebtedness and the low interest rate environment. Operating margin, however, slipped 90 basis points to 14.2% as the decline in revenue outpaced that of operating cost.
Funds from operation interest coverage strengthened to 5.4 times; above the previous three-year average of 2.7 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, from 5.5 times in FY97 to 2.1 times in FY99, reflecting the effect of the reduction in both total debt and accumulated losses over the same period.
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 expected continued dominant position in servicing this industry.
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, PETRONAS Carigali Sdn Bhd and Sarawak Shell Sdn Bhd. MHSA operates its fleet of 18 helicopters out of three main bases; Kertih, Miri and Subang.
On 4th June 1999, the management of MHSA completed the management buyout of the company from Malaysian Helicopters Services Berhad, with DRIR Equities Sdn Bhd emerging as the new major shareholder of MHSA.
MARC believes the recovery of crude oil and natural gas prices from their lows in 1998; the country’s general economic recovery, and the diminishing threat of global recession will improve the outlook for the oil and gas industry. The current worldwide stockpiles which are at a 10-year low will lead to an increase in exploration and production activities over the next few years.
Operating in a protected environment with limited competition, MHSA will benefit directly from the increase in both exploration and production activities. High capital costs and exacting operational requirements of clients remain as the barriers to entry into the industry.
Over 80% of operating revenue is derived from helicopter charter services to the oil and gas companies. While contracts with major clients are on a long-term basis, increased joint exploration efforts between PETRONAS and the oil majors would lead to a reduction in helicopter requirement. This was the case under the long-term charter contract with Esso Production Malaysia Inc. The adverse effect on MHSA’s revenue would, nevertheless, be correspondingly offset by its lower operating costs.
The long-term contracts comprise 80% on average of revenue. Monthly standing charges (fixed charges) under these contracts introduce an element of stability to the revenue stream. Short term contracts mainly cover exploratory activities and are, therefore, unpredictable as a source of revenue.
MHSA managed to record its second consecutive year of profit (1999 pretax profit RM10.45 million) despite a 10.8% decline in revenue. The main contributory factor was the significantly lower interest costs stemming from the company’s reduced indebtedness and the low interest rate environment. Operating margin, however, slipped 90 basis points to 14.2% as the decline in revenue outpaced that of operating cost.
Funds from operation interest coverage strengthened to 5.4 times; above the previous three-year average of 2.7 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, from 5.5 times in FY97 to 2.1 times in FY99, reflecting the effect of the reduction in both total debt and accumulated losses over the same period.