Velesto reported a 1Q22 core net loss of -RM31.1m (QoQ: RM13.9m, YoY: -RM53.2m). The result came in broadly within our expectation (FY22f: RM5.1m) and consensus (FY22f: RM0.5m) as we anticipate sequential improvement with better utilisation rates ahead. We highlight that Velesto has secured a two-year umbrella contract under Petronas Carigali and a jack-up drilling rig for the Cuu Long basin in Vietnam. Also, we are forecasting Velesto to turn profitable in FY22-23 as we expect to see a pick-up in drilling rig tenders this year amidst the current high crude oil price. Maintain BUY with an unchanged TP of RM0.18 based on 0.7x FY22 P/B.

Broadly within expectations. Velesto reported a 1Q22 core net loss of -RM31.1m (QoQ: RM13.9m, YoY: RM53.2m) – adjusted predominantly for RM15.1m translation differences. Despite the loss, we deem the results to be inline with our expectation (FY22f: RM5.1m) and consensus (FY22f: RM0.5m) as we anticipate sequential improvement with better utilisation rates ahead.

Dividends. No dividends were declared, as expected.

QoQ. Velesto’s 1Q22 revenue dipped by 51% QoQ and registered a core net loss of -RM31.1m (QoQ: RM13.9m) mainly due to a lower rig blended utilisation rate of 39% (compared to 78% in 4Q21).

YoY. Revenue increased by 76% and core net loss shrunk to -RM31.1m in 1Q22 (from -RM53.2m in 1Q21) due to higher rig blended utilisation rate of 39% based on 6 rigs (vs. 28% in 1Q21 based on 7 rigs).

Outlook. We highlight that Velesto has secured a two-year umbrella contract under Petronas Carigali and a jack-up drilling rig for the Cuu Long basin in Vietnam. Also, we are forecasting Velesto to turn profitable in FY22-23f as we expect to see a pick up in drilling rig tenders this year amidst the high current crude oil price which will lead to increased activity in the O&G space. Net debt and net gearing stood at RM276m and 0.12x as at end-March 2022 (vs. a net debt and net gearing of RM289m and 0.13x as at end-December 2021).

Forecast. We make no changes to our FY22-23F earnings estimates. While blended utilisation levels in 1Q22 was lukewarm due to the annual timeline of clients’ capex planning cycle, we expect Velesto to perform better in FY22f (compared to FY20-21).

Maintain BUY, TP of RM0.18. Maintain BUY with an unchanged TP of RM0.18 based on 0.7x FY22 P/B.

Source: Hong Leong Investment Bank Research - 26 May 2022