Overview. Velesto core losses narrowed by 31% qoq to RM52m as revenue rose marginally by 10% to RM91.5m. Utilisation rate improved to 51% (based on 6 capacity rigs i.e. excluding NAGA 7) as compared to 38% in 2Q21 (based on 7 capacity rigs). On yoy basis, core losses widened from LAT of RM6.6m due to lower utilisation rate (3Q20: 60%).

Key highlights. Net gearing drops substantially to 15% (2Q21: 38%) as total borrowings almost halved to RM575m following early repayment using the insurance claim proceeds received amounting to RM544m.

Against estimates: Inline. 9M21 revenue of RM219m made up only 50% of our full year forecast. However, we deem this as within our forecast as we think the company is capable to meet our full year assumption of 50% (9M21: 39%). Hence, no change is made to our earnings forecast.

Outlook. We expect stronger result in 4Q21 as 5 rigs are currently working (Table 2) while the remaining rig (i.e. NAGA 3) is still being tendered out to its clients.

Our call. Share price has weakened as it was affected by sudden plunge in oil price to c.USD75/bbl. Nonetheless, we maintain our BUY call on Velesto as we view oil companies are still comfortable to continue with offshore development projects at prevailing market condition. Our TP is unchanged TP at RM0.28 pegging 1x P/B to FY22F.

Source: BIMB Securities Research - 30 Nov 2021