Velesto Energy (Velesto) returned to core profit of RM14mn in 1Q23 on the back of rising daily charter rate (DCR) which rose by 10% QoQ to USD86k/day and steady utilisation rate of 90%. This lagged both our and consensus forecast at 12% and 13% respectively. Nonetheless, we expect a strong catch-up in earnings as the revision on DCR by Petronas was only effective in March 2023. The company has an orderbook of RM1.3bn and is currently tendering for jobs in FY24-25F. We see upside risk to our FY24-25F earnings forecast (which is based on DCR of USD97-100k/day) as all marketable rigs in the SEA region are fully contracted. Hence, maintain a BUY call on Velesto with TP RM0.30.

• Within expectation. 1Q23 profit of RM14mn is deemed within estimate despite making up only 12% of our full year forecast.

• Dividend. No dividend was declared as expected.

• QoQ. Bottomline turned to a core profit of RM14mn from a core loss of RM26mn driven by higher jack-up rig DCR as well as improved utilisation rate of hydraulic workover unit (HWU). Rig DCR rose by 10% QoQ to USD86k/day whereas utilisation rate of HWU improved to 48% from 27% in 4Q22. GAIT 5 was in service to Petronas for Tembungo field during the quarter whereas GAIT 6 was attached to ExxonMobil.

• YoY. Revenue tripled to RM287mn thanks to (i) higher rig utilisation rate that rose to 90% from 51% in 1Q22, (ii) HWU utilisation rate that jumped to 48% from 0% in 1Q22, (iii) higher DCR by 16% from USD74k/day and (iv) revenue from non-rig services from I-RDC contract in particular from NAGA 5 contract with Hess.

• Outlook. Currently all 6 rigs are working which will maintain high rig utilisation rate in 2Q23. However, 3Q23 utilisation rate may slip due to the completion of NAGA 2 and NAGA 4 contracts with ROC Oil and Shell respectively. These rigs will only be chartered to Petronas at mid/end of 3Q23. Nonetheless, Velesto is still on track to achieve a 75-80% utilisation rate for FY23. The company’s firm orderbook stood at RM1.3bn (as at end 1Q23) which will last until 1Q24. It is tendering for jobs in 2024/25 with total tenderbook valued at RM3.7bn. The DCR for most of these jobs particularly in SEA region are expected to remain elevated given that all marketable rigs in the region are fully contracted at the moment.

• Our call. Maintain Velesto as a BUY with unchanged TP of RM0.30. Our TP implies 1x FY23F P/B.

Source: BIMB Securities Research - 26 May 2023