Velesto Energy Bhd’s (VELESTO) 1HFY23 core earnings of RM30.6mn (1HFY22: core loss of RM86.3mn) missed expectations at 35% of ours and consensus’ full-year forecasts. The negative variance was mainly attributed to higher-than-expected operating expenses and finance costs.
QoQ: 2QFY23 revenue dropped 2.8% QoQ due to lower progress in the Integrated Rig Drilling Completion (i-RDC) services. However, PBT soared 46.7% QoQ on the back higher average daily charter rate (DCR) (2QFY23: USD94k/day, 1QFY23: USD86k/day) for jack-up rigs.
YoY: Revenue for the quarter more than tripled YoY supported by: (i) higher utilisation rate (2QFY23: 88%, 2QFY22: 41%) and average DCR (2QFY23: USD94k/day, 2QFY22: USD75k/day) for jack-up rigs, (ii) higher utilisation of hydraulic workover units, and (iii) greater progress of i-RDC services. Consequently, the group turned from LBT of RM41.8mn to PBT of RM22.7mn in 2QFY23.
1HFY23: The group registered a PBT of RM38.2mn (1HFY22: LBT of RM87.6mn) on the back of: (i) higher utilisation rate (1HFY23: 89%, 1HFY22: 40%) and average DCR (1HFY23: USD90k/day, 1HFY22: USD75k/day) for jack-up rigs, (ii) higher utilisation of hydraulic workover units, and (iii) greater progress of i-RDC services.
Impact
No change to our earnings forecasts pending granularity from the analyst briefing later today.
Outlook
With the benchmark Brent crude oil expected to remain above USD80/bbl until the end of 2023, we expect to see more capex spending by major oil producers moving forward. This, coupled with heightened competition for jack-up rigs globally should provide favourable upside to the average DCR. Note that the jack-up rigs’ utilisation rate in Southeast Asia remains at 100%.
Nonetheless, we expect earnings to be lower QoQ in the coming quarter mainly dragged by lower utilisation rate as some of the jack-up rigs are expected to undergo special periodic survey (SPS) or underwater inspection in lieu of drydocking (UWILD) throughout most of 3QFY23.
Valuation
We roll forward our base year to CY24. Maintain Sell with a higher TP of RM0.22/share (previous: RM0.19/share) pegged to 6.5x CY24 EV/EBITDA.
New IPO: Building management systems (BMS), solar thermal systems and energy-saving services provider, Solar District Cooling Bhd aims to list on the Ace Market!
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....