Yesterday, Velesto announced that it has secured a USD14m contract from Roc Oil (Sarawak) Sdn Bhd for the provision of jack-up drilling rig services. The contract entails drilling 3 wells – specifically procured for Velesto’s Naga 2 rig. We gather that the job is expected to commence in Feb 2023 for an estimated duration of about 4 months (or 120 days). We are positive on the job win as it will keep Velesto’s Naga 2 rig occupied until mid-June 2023 which will help boost the group’s overall blended rig utilisation rate while riding on the increasing DCRs. With this job win, we highlight that all of Velesto’s rigs are now utilised. We maintain our BUY recommendation with a higher TP of RM0.29/share – pegged to 14x of FY24f profits.

NEWSBREAK

Yesterday, Velesto announced that it has secured a USD14m contract from Roc Oil (Sarawak) Sdn Bhd for the provision of jack-up drilling rig services. The contract entails drilling 3 wells – specifically procured for Velesto’s Naga 2 rig. We gather that the job is expected to commence in Feb 2023 for an estimated duration of about 4 months (or 120 days).

HLIB’s VIEW

Positive. We are positive on the job win as it will keep Velesto’s Naga 2 rig occupied until mid-June 2023 which will help boost the group’s overall blended rig utilisation rate while riding on the increasing DCRs. With this job win, we highlight that all of Velesto’s rigs are now utilised.

Daily Charter Rates (DCR). We estimate the DCR for the job to range from USD95- 100k.

Status of rigs. All of Velesto’s rigs are currently chartered, as follows:  

Naga 2 – Contracted Until 2Q2023.  

Naga 3 – Contracted Until 1Q2023.  

Naga 4 – contracted until 1Q2023, will undergo upgrade works after – till 2Q2023.  

Naga 5 – Contracted Until Mid-2024 With This Job Win.  

Naga 6 – Contracted Until 1Q2023 for Petronas Carigali.  

Naga 8 – Contracted Until 1Q2024 for Carigali-Hess Operating Company.

4Q22 earnings preview. From the rig schedule mentioned above, we remain optimistic and believe that Velesto be profitable in 4Q22, in which results are slated for release on 27 Feb. We should also expect the group to be profitable in FY23 as all of its rigs are chartered until at least the end of the year.

Forecast. No changes to FY22f estimates. However, post tweaks, channel checks and discussion with the group, we raise our FY23-24f earnings forecasts by 7x and 5x respectively to account for significantly higher DCRs (USD100-110k/day) and blended utilisation rates (70-75%).

Maintain BUY; TP of RM0.29. We maintain our BUY recommendation with a higher TP of RM0.29 (from RM0.17 previously), based on 14x FY24f profits, which is in-line with the multiple ascribed to all of the OGSE providers in the sector.

Source: Hong Leong Investment Bank Research - 3 Feb 2023