[RAM] RAM Ratings assigns AA3 rating to Keyfield's proposed sukuk

RAM Ratings has assigned an AA3/Stable rating to Keyfield International Berhad’s (Keyfield or the Group) proposed RM1 bil Islamic Medium-Term Notes (IMTN) Programme.

Keyfield provides offshore support vessels (OSVs) that mainly support oil and gas (O&G) activities in Malaysia. As at end-August 2024, the Group had 13 OSVs in its stable. Specialising in the provision of accommodation work boats or barges (AWB), the Group has 10 such vessels under its name. Keyfield also has two anchor handling tug and supply vessels and one platform supply vessel. Besides its own ships, Keyfield charters OSVs from third-party owners when required. 

The rating is underpinned by Keyfield’s position as a leading workboat provider with a favourable fleet profile, its robust financial performance and margins, and also the expectation that the Group will maintain conservative leverage and debt coverage metrics. These credit strengths are moderated by Keyfield’s exposure to order book and customer concentration risks as well as the cyclicality of the O&G sector, hefty capital expenditure requirements and licence renewal risks.

By end-2023, within five years of obtaining an upstream O&G licence from Petronas, Keyfield had achieved a share of about 24% of the AWB market in terms of total days chartered, backed by shareholders’ equity financing, keeping its balance sheet conservative and agile. This is a testament of Keyfield’s service levels despite a somewhat short operating record and a reflection of the strong demand for OSVs over that period. The average age of the Group’s fleet is about eight years, comparing favourably against the industry average of about 10 years. Newer vessels are generally preferred by clients, fetch higher daily charter rates (DCRs) and require lower maintenance costs.

Keyfield’s financial performance strengthened in tandem with fleet expansion and improving DCRs, which reflect the post-COVID resurgence in oil prices and O&G activities. The number of vessels chartered each year grew from six (of which one was Keyfield’s own) in 2020 to 20 (10 owned) by end-2023. Total revenue leapt from RM75 mil to RM431 mil (79% compound annual growth rate) while the margin on operating profit before depreciation, interest and tax widened from 31% to 46%, indicative of a larger proportion of owned vessels (which yield higher margins than third-party vessels). In FY Dec 2023, Keyfield posted a pre-tax profit of about RM147 mil.

As the OSV market is presently on an upcycle, demand is anticipated to remain robust for at least the next two to three years amid sturdy O&G activities and spending. Management has nevertheless indicated that it expects to keep the Group’s capital structure conservative while pursuing its fleet expansion strategy, considering the cyclical nature of the industry. 

As at end-June 2024, Keyfield’s gearing ratio stood at only 0.05 times and the Group was in a net cash position. Keyfield expects to add three more OSVs (two of which have been confirmed) at a combined cost of about RM200 mil-RM250 mil, bringing its total fleet size to 15. This sum will be funded by RM250 mil of IMTNs, after which the Group’s leverage and debt coverage measures are envisaged to remain conservative. 

Under RAM’s sensitised scenario (maintaining firm longer-term charters while stressing DCR and charter days for the other vessels by about 30% from Keyfield’s expectations), gearing (<0.40 times) and funds from operations debt coverage (>0.34 times) are projected to stay conservative. This illustrates the headroom that the Group has to cushion the inevitable cyclicality in DCRs and vessel utilisation. The buffer would be curtailed if DCRs and utilisation reduce and/or debts increase. 

Beyond the cyclicality of the O&G sector, Keyfield’s financial performance is susceptible to order book replenishment and customer concentration risks. Given the dominance of Petronas and larger players in the domestic O&G sector, some degree of customer concentration is inevitable. Keyfield’s top 10 customers account for virtually all the Group’s revenue. Furthermore, all but three of its own OSVs are on short-term charters (<1 year), which we understand is an industry norm. The tight supply of OSVs in the next two to three years mitigates these risks. Meanwhile, the Group’s repeat clients are an endorsement of its service levels and ability to replenish its order book. To date, Keyfield has twice renewed its upstream licence from Petronas (prerequisite to participate in upstream O&G sector) since June 2018.
 

Analytical contacts
Chuan Shyang Lin
(603) 3385 2536
shyanglin@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my