Velesto Energy Bhd (Velesto) will achieve its best quarterly performance in years for its 4Q23, according to Maybank Investment Bank’s (Maybank IB) projection, post meeting with the group’s management.
“We tweak our FY23 to FY25E net profit forecasts by downward of 5%, downward 10% and upward of 6% based on the latest guidance provided by management with the group having 4 SPS (special periodical surveys) scheduled for FY24E.
“Our revised assumptions are utilisation rates of 81%, 82%, 85%; and blended daily charter rates (DCRs) of USD93,000, USD112,000 and USD130,000 for FY23-25E respectively,” it said in its Results Note yesterday (Jan 15).
Maybank IB maintains its BUY call on Velesto with a higher TP of RM0.34, an increase of 4 sen, based on rolled-over 14x PER (unchanged) on mid-FY25E earnings per share (EPS) (FY24E previously). Velesto is also its sector’s Top Picks.
This is because the research house expected a strong showing in Velesto’s 4Q23 results, which will be released on 27 Feb 2024.
“We expect Velesto’s 4Q23 utilisation rate to be high at 89%, with jackup (JU) rigs up and running, compared to the 3Q’s utilisation rate at 62% and average blended DCR of USD97,500 versus in 4Q in USD97,000 in 3Q.
“Our revised estimates imply that Velesto will rake in a 4Q23 core net profit of RM25 million compared to 3Q23: RM1.2 million, barring any unforeseen cost swings – which would be the group’s best quarterly performance in years (since 3Q19),” it said.
Post-meeting with management, the house has imputed 4 SPS, with a capex of USD10 million each in FY24E, resulting in a downward revision in our utilisation rate estimates for 3Q24 and 4Q24 respectively.
“And with all of the SPS being loaded in FY24E, coupled with renewal of contracts on higher average DCR of around USD130,000 in FY25E, we think that the group will be in a net cash position as early as end-FY25E without a dividend policy.
“With that, we believe it is reasonable to now project a dividend payment at a 30% payout of profit after taxation and minority interests (PATAMI) in FY25E, amounting to approximately 0.9 sen per share, net gearing of 0.03 times after dividends in FY25E,” it added.
With 3 of Velesto’s rigs slated to complete or end their current jobs by early 2Q24, including Vestigo (Naga2) by mid-1Q24, Petronas Carigali (Naga 4) by mid-1Q24 and Hess (Naga 5) by early-2Q24, Maybank IB expects some contract wins for Velesto as the group aims to fill up its rig job schedule.
The risks to its call include a severe decline in crude oil prices; the group not being able to secure contracts resulting in a decline in utilisation rates; and not being able to lock-in higher DCRs for future jobs.
