Velesto has secured a drilling job from Petronas for its Naga 2 rig – with a contract value of US$12.4m (~RM52m). We are mildly positive on this contract win as it will keep Velesto’s Naga 2 rig busy until at least end-April 2021, with the extension option for another one plus one (1+1) month. No changes to our earnings estimates. Maintain BUY at unchanged TP of RM0.18, based on 0.65x FY21 P/B.

NEWSBREAK

Last Friday, Velesto announced that it has secured a US$12.4m (~RM52m) drilling job from Petronas. The contract entails drilling five (5) firm wells, with the extension option of one plus one (1+1) wells – specifically procured for Velesto’s Naga 2 rig. The job is expected to commence in December 2021 for a duration of ~5 months, with the possibility of further extension for another 1+1 months.

HLIB’s VIEW

Mildly positive. We are mildly positive on the job win as it will keep Velesto’s Naga 2 rig occupied until at least end-April 2021, with the possibility of further extension for another 1+1 months. We understand that utilisation is generally low for jack-up rig players in 1Q annually due to two key reasons: (1) the monsoon season from December to February; and (2) clients’ capex planning cycle.

Daily Charter Rates (DCR). DCR for the job is estimated to range from US$70 – 75k.

Status of rigs. Velesto currently has 5 chartered rigs, as follows:

Naga 2 – contracted until end-April 2022 with this job win.

Naga 3 – idle.

Naga 4 – contracted until November 2021, will begin Shell job in December 2021 for a duration of 7 to 8 months.

Naga 5 – contracted until end-November 2021.

Naga 6 – contracted for a 3-month job ending November 2021.

Naga 8 – commenced on a 3+1+1 years contract from Petronas in April 2021.

Update on Naga 7. We understand that most of the US$135m proceeds have been collected from insurers. Management has guided that it will be used to pare down borrowings and de-gear its balance sheet.

Forecast. We make no changes to our earnings estimates.

Maintain BUY; TP of RM0.18. We maintain our BUY recommendation with an unchanged TP of RM0.18, based on 0.65x (unchanged) FY21 P/B – which is in-line with its 3-year historical mean P/B. From the rig schedule showed above – we are expecting an improvement in earnings in 2H21 after a weak 1H21 given its improved utilisation rates for its rigs (blended utilisation rate in 1H21 stood at 33%).

Source: Hong Leong Investment Bank Research - 4 Oct 2021