NFE drilling to fuel GIS growth in 2020, says report
NFE contract should boost GIS’ earnings by an average of 30% over 2020-2023: QNBFS
QNB inancial Services (QNB S) has announced that it has updated its estimates and reiterated outperform rating on Gulf International Services (GIS) with an unchanged target price of QR2.10.
ollowing the positive momentum shown in the first quarter of 2020 results, QNB S said, “We think this year is well on track with GIS expected to post a 442 percent growth in earnings.”
According to the company report released by QNB S, news ow-related catalysts remain positive with GDI deploying its jackup rig ‘Lovanda’ on March 29 as part of its 80-well drilling programme for Qatar’s North ield East (N E) project.
N E contract should boost GIS’ earnings by an averag e of 30 percent over 2020-2023, the report said.
“Overall, the GDI, Seadrill JV (GulfDrill) will begin to deploy six rigs in a phased manner in 2020. Moreover, on top its companywide costs optimisation programme, GIS is looking to restructure and refinance GDI’s 1.3 billion debt pile in order to lower finance costs, extend repayments and enhance shareholder value. Besides risks of impairment for the Msheireb rig this year, we believe the company could face some delays or slowdown in its operations and debt-restructuring programme due to the ongoing COVID-19 situation,” the report said.
“The current plan of GIS is to upstream 275 million of GDI debt into GISS, where the other three segments can contribute to payments, along with extending the tenor over ten years. Under this arrangement, the company will have a two-year grace period on repayments and a balloon payment of 20 percent at the end of ten years,” it said.
“Annual interest savings of QR7.4 million translates to 22 percent of GIS’ 2019 net income. We expect earnings to grow from QR34 million in 2019 to QR 184 million in 2020 as drilling loss declines significantly. Aviation also contributes nicely, while continued progres s in costs reduction and lower finance charges help boost earnings,” the report said.
“or 2021, we now expect GIS net income to grow 105 percent to QR377 million. We expect the drilling segment to recover from a QR111 million loss in 2019 to a modest QR17 million loss in 2020 before recording earnings of QR107 million in 2021. Gulf Drilling should deploy five new rigs and one existing one (West Tucana) in a phased manner in 2020 for the N E programme,” it said.
Along with its share of JV income, the report said, GDI will also record management fees for operating these rigs.
“The N E programme should offset decline in revenue from the existing
eet as we continue to expect pressure on rig rates given lower oil prices. Operating costs for the existing eet, along with SG A expenses should improve, while finance charges should benefit from lower LIBOR rates,” the report said.
“Aviation should also contribute nicely with segment earnings growing from QR143 million in 2019 to QR185 million in 2020 and QR205 million in 2021. Besides its top-line enjoying a boost from the consolidation of GHC’s Turkish subsidiary “RedStar” in May 2019, segment performance in the first quarter of 2020 also benefited from overall traction in international markets, growth in domestic oil and gas operations, repricing of some contracts. We note one new chopper was added in domestic O G bringing total eet size to 55,” the report said.
After posting a slight profit in 2020 due to mark-to-market declines recorded in the first quarter of 2020, the report said, it expects GIS’ insurance segment to jump back significantly into the green in 2021.
“As per our model, insurance earnings should decline from QR16 million in 2019 to QR3 million in 2020 before increasing to QR75 million in 2021. Overall performance should continue to benefit from renewal and repricing especially in the medical segment. As coronavirus-related medical claims are mostly not covered, we do not expect a significant uptick in net claims due to the ongoing pandemic,” the report said.
“The company’s catering segment should benefit from the momentum seen in the first quarter of 2020 and increase its net income from QR12 million in 2019 to QR21 million in 2020 and QR22 million in 2021. This segment is seeing traction in core industrial catering and manpower contracting services, along with higher occupancy in Mesaieed and Dukhan camps,” the report said.
Despite some near-to-mediumterm challenges because of COVID-19, the report said, Amwaj expects Qatar’s catering market to grow through to 2024 driven by the N E project and the I A World Cup Qatar 2022.