• Maintain BUY (TP: RM0.34). Velesto Energy (Velesto) 9M24 core profit of RM153mn (+365% YoY) was above both our and consensus’ estimate at 86% and 92% respectively. That was despite 3Q24 profit declined by 32% QoQ to RM43mn due to lower rig utilisation rate (UR) of 72%. We raised our FY24F estimate by 10% to RM195mn as we impute higher margin assumption. We think the market has overreacted towards the NAGA 8 rig suspension notice as we believe the company will be able to redeploy it to other opportunities in the region. Maintain a BUY call on Velesto with TP of RM0.34.

• Key Highlights. On QoQ basis, 3Q24 revenue declined 10% to RM352mn mainly due to lower UR of 72% (Chart 1) owing to Special Periodical Survey (SPS) for Naga 2 and Naga 6 which were completed in Aug 2024 and Sep 2024 respectively. However, this was partially negated by higher DCR that rose by 10% QoQ to USD127k. PBT margin declined to 13.8% in tandem with lower revenue. However, this was distorted by I-RDC non-drilling revenue which carries lower margin. At drilling side, PBT margin was sturdy at 29.5% (2Q24: 34.3%) despite lower utilisation rate.

• Earnings Forecast. We raised our FY24F estimate by 10% to RM195mn but maintain FY25-26F as we err on the downside risk.

• Outlook. The company has received rig suspension notice for Naga 8 from Carigali Hess, citing the early completion of drilling programme, estimated to be on 10th Feb 2025 instead of initial contract completion date in Oct 2024. This has reduced its orderbook to RM0.9bn (2Q24: RM1.6bn). Nonetheless, management remain optimistic to achieve UR of at least 70% in FY25F whereby Naga 8 will be marketed for other opportunities in the region. Management plans to conduct the SPS activity for Naga 8 earlier (i.e. in Mar 2025) which would allow the rig to pursue long-term contract afterwards.

Source: BIMB Securities Research - 2 Dec 2024