• Maintain BUY (TP: RM0.30). Velesto Energy (Velesto) 9M23 core profit of RM32.8mn made up 27% and 47% of our and consensus’ estimate respectively. 3Q23 core earnings declined 93% QoQ and 92% YoY to RM1.2mn as utilisation rate (UR) declined to 62% which was in line with management guidance. However, the company remained in black underpinned by the turnaround in Integrated segment which recorded PBT of RM9mn. We cut our FY23F earnings forecast by 48% but raised our FY24F/FY25F earnings by 14%/23% respectively as we revisit our key assumptions. We expect the company to continue benefitting from rising daily charter rate (DCR) amidst the supply shortage. Maintain a BUY call on Velesto with TP RM0.30 which implies 17x FY24F P/E and 1x FY24F P/B.

• Key highlights. 3Q23 revenue rose QoQ mainly driven by higher UR of hydraulic workover unit (HWU) which is operating under Integrated segment. This had more than offset the decline in revenue from drilling segment. Average DCR for jack-up rose further by 3.1% QoQ to USD97k/day from USD94k/day in 2Q23. The drilling segment recorded small PAT of RM4.6mn despite running at UR of only 62% in 3Q23. This was due to maintenance activities for both NAGA 2 and NAGA 8 whereas NAGA 4 conducted its special periodic survey (SPS) for 70 days in Singapore. Nonetheless, 9M23 UR was markedly higher at 80% against 53% in 9M22.

• Earnings forecast. We cut our FY23F earnings forecast by 48% but raised our FY24F/FY25F earnings by 14%/23% (Table 3) respectively as we revisit our key assumptions.

• Outlook. 4Q23 earnings will be the strongest quarter in FY23 as all rigs are currently working coupled with high DCR of close to USD100k/day. We expect this to continue into FY24 as the company is tendering for jobs at a market rate of USD130k/day.

Source: BIMB Securities Research - 30 Nov 2023