• Maintain BUY (TP: RM0.34). Velesto Energy (Velesto) 1Q24 core profit of RM46.8mn was within both our and consensus’ estimate at 26%. Its average daily charter rate (DCR) rose further to USD107k/day in 1Q24 (1Q23: USD86k/day; 4Q23: USD99k/day) which led to stronger earnings in the quarter. We expect DCR to rise further in 2Q24, hence leading to a consequential stronger earnings in 2Q24. Maintain a BUY call on Velesto with TP RM0.34 which implies 17x FY24F P/E and 1x FY24F P/B.

• Key highlights. On QoQ basis, 4Q23 revenue slipped by 6% due to lower utilisation rate of hydraulic workover unit (HWU) and lower progress of integrated rig, drilling and completion (i-RDC) project. This led to decline in profit by 30%, further exacerbated by higher depreciation arising from NAGA 4 SPS that was completed in Aug 2023 as well as provision for accelerated depreciation made for certain drilling asset. Rig utilisation rate was comparable at 94% (1Q23: 90%, 4Q23: 94%).

• Earnings forecast. No change is made to our earnings forecast.

• Outlook. We expect a consequentially stronger quarter in 2Q24 as DCR could rise further to USD120k/day. This is due to full quarter impact of new rate that was effective towards the end of 1Q24. Besides that, NAGA 8 will also enjoy higher rate beginning Apr/May 2024.

Source: BIMB Securities Research - 24 May 2024