Velesto announced that it received a Letter of Award from Sarawak Shell Bhd/Sabah Shell Petroleum Company (SSB/SSPC). The contract is estimated to be worth US$25m for the charter of NAGA 7 which will commence tentatively sometime in Aug/Sep 2018. This is timely for NAGA 7 which contract with Petronas Carigali expired in Jun 2018.
Assuming it is a one-year contract, we estimate the daily charter rate (DCR) is c.US$70k/day. This is roughly similar to the US$31m contract awarded to NAGA 4 recently. With the latest job win, Velesto’s current orderbook stands at c.RM580m.
Leveraging on its advantage as a local content, we expect Velesto’s NAGA 3 and NAGA 5 would likely secure new contracts in 2H18. NAGA 3 contract with Petronas Carigali expired in Jun 2018 while NAGA 5’s existing charter with Repsol would expire in Sep 2018.
Separately, Velesto also recently announced that it was awarded US$20m following an arbitration proceeding against Frontier Oil Corp. Velesto expects to receive the money probably in FY19 onwards and we believe this would be utilised for its working capital requirement in the future.
The new contract win reaffirms our belief that Velesto would be the preferred jack-up rig operator primarily due to its advantage as a local service provider as well as its fairly modern fleet. We expect recovery in the upstream production would see sustainable utilisation rate and eventually result in higher DCR. Maintain BUY with an unchanged TP of RM0.33. Our TP is based on 1x FY19 P/B.
Source: BIMB Securities Research - 30 Jul 2018
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