Fitch negative on Anton's outlook

Agency points to lower profit margins and customers' spending cuts for changing view

PUBLISHED : Friday, 05 September, 2014, 1:21am
UPDATED : Friday, 05 September, 2014, 4:26am


Fitch Ratings has revised its rating outlook on Anton Oilfield Services Group, one of the mainland's largest privately owned oilfield services firms, to negative from stable, citing lower profit margins, customers' spending cuts and slower payments.

The ratings agency said the negative outlook reflected stiffer competition and reduced spending on new projects by key state-backed oil and gas firms.

"While we expect the order flow to independent oilfield services providers to improve in the coming months, we believe [Anton] will have to deal with trends of higher competition, lower margins and higher accounts receivable days that are likely to outlast the industry downturn," Fitch said.

It affirmed Anton's BB long-term issuer default and senior unsecured debt rating.

The outlook revision came a week after Anton reported a worse-than-expected 83 per cent plunge in net profit to 27.4 million yuan (HK$34.57 million) for the first half, citing higher finance costs and "clients' changed operating plans".

This coincided with a ramp-up in "hydraulic fracking" capacity by 85 per cent in the 12 months to June to help clients extract oil and gas in underground formations through injecting pressurised water and chemicals.

Anton's share price fell 16.3 per cent in the two trading days after it released the results. The stock closed 1.76 per cent higher yesterday at HK$3.46.

"Anton has expanded capacity aggressively at a time when oil majors have been cutting capital expenditure and investigations into [PetroChina's executives] resulted in a slowdown of new projects," Sanford C Bernstein senior analyst Neil Beveridge wrote in a note.

"The asset heavy strategy is clearly not working."

The ramp-up saw Anton's first-half net finance costs quadruple to 88.8 million yuan, or 52.5 per cent of operating profit.

Operating profit margin fell to 41.4 per cent from 44.3 per cent. Customers took an average 223 days to pay bills, up from 163 days.

At least six senior executives of PetroChina and its parent firm China National Petroleum Corp have been detained to assist corruption probes and removed from their posts, resulting in delays in new projects and less outsourcing of oilfield services after new managers were installed.

Still, one of Anton's rivals, SPT Energy Group, posted a 20 per cent first-half net profit growth to 121 million yuan, excluding a loss from currency devaluation in Kazakhstan, share option expense and asset impairment loss, according to a Jefferies research note. Mainland sales grew 42 per cent.

A Barclays research note attributed it to SPT's more cautious asset investment, and a focus on high-end services in northwest China and Central Asia markets.