• We came back from analyst briefing held by Velesto Energy (Velesto) feeling optimistic on its outlook.

• According to latest rig schedule, the company is likely to maintain strong utilisation rate (UR) of 80-90% for FY24-25F. This is largely within our UR assumption of 85%.

• However, we raised our FY24F/FY25F/FY26F earnings forecast by 23%/33%/32% (see Table 1) as we adjust our DCR assumption to USD125-130k/day (from USD103-105k/day). Overall, we estimate earnings to grow by 78% YoY to RM178mn in FY24F mainly driven by higher DCR.

• As DCR appears to have reached its peak at prevailing market rate of USD130-150k/day, the company is exploring a new engine of growth in order to achieve RM2bn in annual revenue by 2030.

• Maintain a BUY call on Velesto with higher TP of RM0.34 (from RM0.30). This implies 16x FY24F P/E and 1.1x FY24F P/B.

The key takeaways from Analyst Briefing session are:

• Management is optimistic that it is on the cusp of strong turnaround with orders visibility up until end CY25. As a testament to that, the board has declared its maiden interim dividend since 2014 with DPS of 0.25sen.

• On supply side, it guided that there is no spare rigs available in Southeast Asia region currently. Hence, any O&G companies that are looking to secure rigs for drilling at this juncture will need to incur higher mobilisation fee to secure rigs from outside the region.

• Currently, management is working to secure works for 2026/27 as it anticipates current shortage of rigs may subside during the period amidst signal from Saudi Aramco that it may cut its capex spending.

• The company has secured a contract extension to provide rigs to Petronas at a new higher rate which shall be effective in March 2024. We anticipate this to be at c.USD130k/day which is in line with prevailing market rate. To recap, its average DCR in 4Q23 and FY23 stood at USD99k/day and USD94k/day respectively.

• Management also guided that utilisation rate (UR) of rigs in FY24 to be comparable to previous year (FY23: 84%). This is to accommodate the special periodic survey (SPS) works that are due for NAGA 2, NAGA 5 and NAGA 6 which will be carried out in 2H24. To minimise the time to be spent at the shipyard, the company will carry out some of SPS scope before arrival at the yard.

• It expects to spend capex of c.RM200mn in 2024 mainly for the planned SPS activities.

• On sustainability, the company targets to release its net zero roadmap by end-2024. This is ahead of requirement by regulators.

Source: BIMB Securities Research - 4 Mar 2024