• Overview. Velesto returned to core profit of RM5m in 4Q21 on the back of higher jack-up utilisation rate. Revenue jumped by 73% qoq and 60% yoy to RM159m as utilisation rate improved to 78% (3Q21: 51%, 4Q20: 50%). On full year basis, FY21 revenue declined 31% to RM378m (FY20: RM547m) while core losses widened to RM185m (FY20: LAT of RM31m) as utilisation rate declined to 48% (FY20: 66%).

• Key highlights. This is its first quarterly profit recorded since 1Q20 as its utilisation rate climbed well above its breakeven level estimated at c.70%.

• Against estimates: Inline. FY21 revenue of RM378m made up 86% of our full year forecast at 86%. However, we deem this as within our forecast given its FY21 utilisation rate of 48% is close to our assumption of 50%.

• Orderbook. The company has firm orderbook worth c.RM400m which is roughly at 1x FY21 revenue. Meanwhile, its tenderbook currently stands at RM1.9bn.

• Outlook. Based on its secured contract, we estimate that it has secured utilisation rate of c.40% in FY22. We expect it to secure more contracts in near future based on our assumption of 70% utilisation rate. However, these contracts may only begin in 2H22.

• Rig status. Currently, 2 rigs are working while another one will be mobilised in early 2Q22. Meanwhile, NAGA 5 and NAGA 6 are being readied for upgrading works ahead of potential contracts in 2H22.

• Our call. We maintain our BUY call on Velesto with unchanged TP of RM0.28 pegging 1x P/B to FY22F. We remain optimistic with its recovery ahead of upcycle in offshore capex spending amidst high oil price environment.

Source: BIMB Securities Research - 1 Mar 2022