• Overview. Velesto Energy (Velesto) reduced its core loss by 42% YoY and 7% QoQ to RM43mn in 2Q22 underpinned by higher jack-up utilisation rate (UR) and higher revenue from workover units. Revenue rose by 4% YoY and 12% QoQ to RM87mn as UR improved slightly to 41% (2Q21: 38%, 1Q22: 39%). For 1H22, revenue grew by 29% YoY to RM164mn whereas core losses reduced by 34% YoY to RM89mn as UR recovered to 40% (1H21: 33%).

• Key highlights. There were 3 working rigs in 2Q22 including NAGA 2, NAGA 4 and NAGA 8 which were on charter with Petronas Carigali, Sabah Shell and Carigali Hess respectively. At UR of 41% in 2Q22, EBITDA has turned positive to RM2mn compared to LBITDA of RM22mn and RM6mn in 2Q21 and 1Q22 respectively.

• Against estimates: Inline. Despite still making losses, its gradual recovery is well within our expectation.

• Outlook. Higher UR is expected in 2H22 as remaining rigs have secured work orders. NAGA 5 has commenced operation in July 2022 whereas NAGA 3 and NAGA 6 will commence its charter with Vietnamese company and Petronas Carigali respectively in September 2022.

• Our call. Reiterate our BUY call on Velesto with unchanged TP of RM0.28 as we pegged 1x P/B to FY22F. We believe it can steadily maintain a high UR beginning 2H22 onwards leveraging on its upgraded rig capability. This will become its key earnings driver which we think is yet to be reflected in its share price.

Source: BIMB Securities Research - 30 Aug 2022