Review

• Velesto Energy Bhd’s (VELESTO) 1HFY24 results came in within ours and consensus expectations at 73% and 68% of full-year forecasts, respectively. We deemed the results within our expectation as we expect a lower overall utilisation rate around 60-70% in 2HFY24 as Naga 2, Naga 5 and Naga 6’s special periodical survey (SPS) and 5-yearly maintenance are within this timeframe.

• QoQ: 2QFY24’s revenue increased 16.2% QoQ driven by all 3 segments. The group saw higher jack-up utilisation (1QFY24: 94%; 2QFY24: 98%), higher average daily charter rate (1QFY24: USD107k; 2QFY24: USD115k) and higher operating efficiency (1QFY24: 98.8%; 2QFY24: 99.8%) in the drilling services and higher progress for i-RDC project due to improved service delivery under Integrated Project Management. Consequently, PBT rose by 43.2%.

• YoY: Similarly to QoQ, revenue rise 40.9% QoQ due to higher jack-up utilisation, higher average DCR and higher operating efficiency and higher progress for i-RDC project under Integrated Project Management. Consequently, PBT rose from RM60.2mn to RM86.2mn.

• The group declared a single-tier interim dividend of 0.25sen/share.

Impact

• No change to earnings forecasts.

Outlook

• Recently, Velesto has completed its mandatory five-yearly SPS for Naga 2 and has dry docked in Singapore since 24th June 2024, which will head to Sarawak to begin a development drilling campaign. We are expecting to see Naga 2 generating revenue starting from September 2024.

• In addition, Velesto has received a letter of award for Naga 3 from Thang Long Joint Operating Co. Naga 3 is expected to be working in Vietnam from September to November 2024. This will allow them to maximise their utilisation before Naga 3’s SPS in 1QFY25.

• U.S Energy Information Administration (“EIA”) is forecasting for global oil demand to increase from 102.9mn barrels per day in 2024 to 104.7mn barrels per day in 2025. Hence, we are expecting to see stable-high DCR moving forward.

• Utilisation is expected to remain stable in 2025, with Naga 2, Naga 4 and Naga 6 contracted until 1QFY26 and Naga 8 up to 4QFY25. However, as for 2HFY24, we are expecting lower overall utilisation rate around 60-70% as Naga 2, Naga 5 and Naga 6’s SPS and 5-yearly maintenance are within this timeframe.

Valuation

• After incorporating an ESG Premium of 3%, we increase our TP to RM0.34/share (previously RM0.33/share) pegged to 12x CY25 EPS. VELESTO is expected to continue benefiting from escalating DCR amidst tight jack-up drilling rig market. Maintain Buy.

Source: TA Research - 30 Aug 2024