Velesto Energy Berhad - USD74mn Contract Extension for NAGA 8

Date: 
2023-11-28
Firm: 
TA
Stock: 
Price Target: 
0.33
Price Call: 
BUY
Last Price: 
0.275
Upside/Downside: 
+0.055 (20.00%)

VELESTO has secured an 18-month contract extension for NAGA 8 valued at USD74mn. This is the group’s first firm contract for jack-up drilling rig that extends into 2025, providing the group earnings visibility up to 3QFY25. At an estimated DCR of USD135k per day, the contract extension is lucrative considering that DCR in Malaysia hovered between USD90k and USD131k per day in July 2023. No change to our earnings forecasts. Maintain Buy with an unchanged target price of RM0.33/share pegged to 7.5x CY24 EV/EBITDA.

Secured USD74mn Contract Extension for NAGA 8

Velesto Energy Berhad’s (VELESTO) indirect wholly owned subsidiary Velesto Drilling Sdn Bhd has mutually agreed with Carigali Hess Operating Company Sdn Bhd to extend the existing 28-month contract that is set to expire around April 2024. With an estimated contract value of USD74mn, the contract will be extended for another 18 months, commencing from 19 April 2024 to 18 October 2025. NAGA 8 will be assigned for the extension period of the contract.

Carigali Hess is a joint venture oil and gas company between PCJDA Ltd and Hess Oil Company of Thailand Ltd based in Kuala Lumpur. It is involved in gas production in Block A-18 of the joint development area administered by the Malaysian-Thailand Joint Authority.

Our View

This is VELESTO’s first firm contract for jack-up drilling rig that extends into 2025, providing the group earnings visibility up to 3QFY25. At an estimated daily charter rate (DCR) of USD135k per day, the contract extension is lucrative considering that DCR in Malaysia hovered between USD90k and USD131k per day in July 2023. This is also much higher than the USD94k/day average VELESTO registered in 2QFY23. Nonetheless, we believe this DCR should be on the higher end among VELESTO’s rigs as NAGA 8 is the newest built rig for the group.

Impact

No change to our earnings forecasts as the contract extension is still within our utilisation rate assumption and average DCR assumption for FY24 and FY25.

Valuation

Maintain Buy with an unchanged target price of RM0.33/share pegged to 7.5x CY24 EV/EBITDA.

Source: TA Research - 28 Nov 2023

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