Reached an Inflection Point in 2023
Velesto’s turnaround in financial performance has been encouraging with 9M23 PAT of RM32.8mn vis-à-vis LAT of RM74.4mn in 9M22. This is the strongest 9M performance since 2015 as it is buoyed by higher asset utilisation rate (UR) and rising daily charter rate (DCR). The company recorded average DCR of USD93k/day in 9M23 which was higher by 24% YoY (9M22: USD74k/day). Meanwhile, UR was also excellent or at 80% as compared to 50-70% in 2017-2022.
Sector Utilisation Rate Turning to Peak Cycle
Rig market conditions remain very tight with marketed utilisation rate (i.e., sector utilisation rate) has returned to the peak of previous cycle of 93% in October 2023. This is on the back of 392 contracted rigs out of 421 units available in the market, based on data from IHS market. This has led to further rise in the DCR. Rigs are currently contracted at the range of USD90k-145k/day and USD68-165k/day in Malaysia and SEA region respectively.
Returning to Glory Days
Given the tight rig market and strong demand for drilling activities, we believe the company is poised to thrive with sustainable profits from FY24 onwards. The company is currently turning its focus towards building orderbook for 2024-2026 which is commendable as DCR has almost returned to previous peak rate of USD130k-150k/day. Its tenderbook value currently stands at RM6.4bn predominantly for works in Malaysia, Thailand and Vietnam. Recall that prior to market downturn, foreign markets made up c.25-50% of the company’s revenue whilst Vietnam contributing to more than half of foreign revenue over FY13-15 period.
Maintain BUY on Velesto with TP of RM0.30
Maintain Velesto as a BUY with a TP of RM0.30 which implies 15x FY24F P/E and 1x FY24F P/B. We believe the market will re-rate the stock amidst stronger earnings visibility from the shortage of offshore rigs.
Source: BIMB Securities Research - 30 Jan 2024
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