• Maintain BUY (TP: RM0.34). Velesto Energy (Velesto) 1H24 core profit of RM110mn made up 62% and 68% of both our and consensus’ estimate respectively. We deem this as within our estimate as the company may post weaker 2H24 earnings due to higher maintenance activities. 2Q24 profit grew by 34% QoQ to RM63mn driven by higher daily charter rate and rig utilisation rate (UR). The company declared a first interim DPS of 0.25sen. We believe the global upcycle in offshore capex spending will continue to boost demand for rigs. Hence, we view recent price sell-down as an attractive opportunity to collect the stock. Maintain a BUY call on Velesto with TP RM0.34 which implies 15x FY25F P/E.

• Key highlights. On QoQ basis, 2Q24 revenue grew 16% to RM393mn underpinned by higher rig daily charter rate (DCR) that rose by 7.4% QoQ to USD115k (1Q24: USD107k) and stronger UR of 98% (1Q24: 94%). Specifically, drilling segment revenue rose 10% QoQ to RM298mn (1Q24: RM270mn) while PBT jumped by 32% QoQ to RM102mn (1Q24: RM78mn) as higher DCR directly contributed to stronger bottomline.

• Earnings forecast. No change is made to our earnings forecast.

• Outlook. The company recorded a very strong UR of 96% in 1H24. UR will dipped in 2H24 as 3 rigs – NAGA 2, NAGA 5 and NAGA 6 – are scheduled for Special Periodical Survey (SPS) and 5-yearly maintenance during the period. Despite concern that the company may be affected by deferral of Petronas’ capex, we think this will have a muted impact to its earnings as it has secured orderbook of c.RM1.6bn that will last until end 2025. More importantly, we believe structural issue of rig shortages would still remain amidst current upcycle in offshore capex spending. Note that average asset utilisation in SEA and Malaysia stood at 97% and 100% respectively.

Source: BIMB Securities Research - 30 Aug 2024