Maybank Investment Banking Group (Maybank IBG) has revised their FY23-25E EPS forecasts on Velesto Energy Berhad (VEB MK) by -20%/+26%/+52% to account for the following changes: (i) blended JU rig DCR forecast of USD93k/114k/126k; (ii) average JU rig utilisation rates of 81%/83%/82%; and (iii) higher EBITDA margin assumptions.
With that, Maybank IB has upgraded Velesto to BUY with a TP of MYR0.30 (from MYR0.24) pegged to 14x FY24E EPS, 20% above the average PER of its domestic OGSE peers of about 11.5x, to reflect the anticipated strong earnings recovery (>200%) in FY24E (+15% for peers).
Look beyond the blip in 3Q23 results
Velesto’s 3Q23 result will be release by end-Nov 2023. Maybank IB expects its 3Q23 utilisation rate to be low at 53% due to: (i) repair/maintenance works for Naga 2; (ii) SPS for Naga 4; and (iii) underwater inspection works for Naga
“We think Velesto will temporarily slip into the red in 3Q23 with core net losses to come in within the range of -MYR10m-20m, barring any unforeseen cost swings. However, as we expect a bright outlook in FY24E (with our revised earnings growth of >200% YoY), investors should look beyond what we believe will be temporary earnings weakness in 3Q23,” Maybank IBG Research said in a note today (Oct 24).
Tight supply to continue driving DCRs in 2024E
As the investment bank understands, the average SEA demand for JU rigs in 2024 is estimated to range between 40-45 rigs while the industry total JU rig supply currently stands at only 38. This shows a tight market – which will continue to drive prices upward in 2024.
As at Sep 2023, the highest DCR recorded for a regional competitor’s rig stood at USD160k (vs. an average of USD120k a year ago). Maybank IB expects Velesto to ride on higher DCRs in 2024E as the group wins new jobs/renews its existing contracts in the upcoming quarters.
Maybank IB expects a >200% YoY boost in FY24E profits
With the assumptions of: (i) higher overall blended JU rig DCR forecast of USD114k in FY24E (vs. USD93k in FY23E); and (ii) a marginally higher average JU rig utilisation rate of 83% in FY24E (vs. 81% in FY23E), coupled with operating leverage – we project a >200% YoY net profit jump in FY24E.
Note that this is following our expectation of a successful turnaround in FY23E (1H23 core net profit: MYR31.6m vs 1H22 core net loss: -MYR89.4m).
