• Velesto’s NAGA 4 secured a new short term contract from Sarawak/Sabah Shell to drill 7 wells worth USD17.68m.
• We expect this contract to start in Sep 2021 and expire in Apr 2022. Based on 252 drilling days, this implies DCR of USD70k/day which is largely similar to its other fleets.
• We expect more contract wins in near-term as the company is actively tendering for 24 contracts with total bid value of RM2.9bn.
• Reiterate BUY with unchanged RM0.265 TP based on 1x FY21F P/B. We believe recent multiple contract wins signify the recovery in offshore activities which allude to the worst is over.

Another job for NAGA 4

Velesto’s NAGA 4 secured a new contract with Sarawak/Sabah Shell to drill 7 firm wells with a contract value of USD17.68m. The contract is expected begin in Sep 2021. To recap, it is currently assigned to Mubadala Petroleum for 7 firm wells drilling campaign at Pegaga field until June 2021.

Estimate DCR of USD70k/day

We expect NAGA 4 to take 252 days to complete the drilling campaign which is expected to be in Apr 2022. This implies daily charter rate (DCR) of c.USD70k/day which is largely similar to the average DCR of its fleets (Table 1).

Maintain our earnings forecast

We maintain our earnings forecast as this contract win is largely within our expectation. To recap, we expect Velesto to achieve utilisation rate of 70% for FY21. We expect more contract award in near future as the company is tendering for 24 contracts (16 short term and 8 long term) with total bid value of RM2.9bn. Currently, 2 rigs are still idle without contract (i.e. NAGA 3 and NAGA 6) while NAGA 5 and NAGA 7 will end its short term contract in June and Sep 2021 respectively (Table 1).

Maintain BUY with unchanged TP of RM0.265

Reiterate BUY on Velesto with unchanged TP of RM0.265 which implies 1x FY21F P/B. We believe recent multiple contract wins signify the recovery in offshore activities which alludes that the worst is over for the industry.

Source: BIMB Securities Research - 8 Apr 2021