• Overview. Velesto reduced its core loss by 24% yoy to RM46m in 1Q22 on the back of higher jack-up utilisation rate (UR). Revenue jumped by 76% yoy to RM77m as UR improved to 39% (1Q21: 28%) on the back of 3 working rigs (NAGA 2, NAGA 4 and NAGA 8). On qoq, revenue declined by 51% qoq as UR dropped from 78% in 4Q21 following the completion of both NAGA 5 and NAGA 6’s respective contract with Petronas Carigali during 4Q21.

• Key highlights. At UR of 39% in 1Q22, it is still not enough for the company to record positive EBITDA with LBITDA of RM6m.

• Against estimates: Inline. 1QFY22 revenue made up only 14% of our full year forecast. However, we deem this as within our forecast in expectation of stronger UR in 2Q22 onwards.

• Orderbook. As at end 1Q22, we estimate that the company has firm orderbook worth c.RM320m while tenderbook stands at RM2.2bn.

• Rig status. Currently, 3 rigs are working while remaining 3 are undergoing upgrading works and being prepared for bidding new contracts. The upgrading works will equip the rigs with offline capabilities which could reduce the number of drilling days and bring down the overall drilling project cost for clients.

• Outlook. Based on its firm orderbook, we estimate that it has secured utilisation rate of c.40% in FY22. However, we believe it could garner better UR as the company has recently been awarded with (i) umbrella contract by Petronas for all of its rigs and (ii) maiden foreign contract since 2015 in Vietnam. To recap, our FY22F earnings forecast is based on our assumption of 70% utilisation rate.

• Our call. Reiterate 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 - 26 May 2022