On qoq basis, revenue grew 34% to RM150m while EBITDA jumped by 40% to RM59m on higher AUR of 75% (2Q18: 59%). All rigs were on charter in 3Q18 with 2 rigs (NAGA 2 and NAGA 8) contributed for the entire quarter (Table 2). We expect AUR to improve further in 4Q18 as several rigs continue to serve its remaining contract until end 2018.
Relative to 3Q18, Velesto slipped in the red but this was mainly due to higher AUR in 3Q17. However, 9M18 depicts a better performance in 2018 thus far; AUR for 9M18 was higher at 67% (9M17: 61%) which led to 8% EBITDA growth and losses narrowing significantly. Overall, the 9M18 EBITDA made up 60% of our 2018F estimates and we deem this as being inline ahead of an earnings respite in 4Q18 due to higher AUR expected (ie. almost full utilisation).
No changes to our 2018F estimates. Going into 2019, we believe business condition remains challenging as it would need to replenish the orderbook for 4 rigs – NAGA 2, 3, 5 and 6; existing charters would end in 2018. Nonetheless, we believe Velesto will be able to sustain a good AUR level leveraging on its strong relationship with Petronas as well as sustained E&P activities on the back of underinvestment by oil majors in recent years.
Maintain BUY with an unchanged TP of RM0.33, based on 1x FY19 P/B. We reckon that Velesto will remain the preferred jack-up operator primarily due to its strong relationship with Petronas and a fairly modern fleet. We also expect E&P activities would sustain despite the ongoing weakness in crude prices. This is mainly on the back of the underinvestment in exploration by oil majors following the crash in crude prices back in 2015. This could sustain Velesto’s AUR and ensure a stable DCR in the near term.
Source: BIMB Securities Research - 26 Nov 2018
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