Velesto’s 4Q23 Results Sees Strongest Quarter In 9 Years, Maybank IB Says Buy

Velesto Energy Berhad (Velesto) 4Q23 results was a major beat relative to Maybank IB’s results preview on Jan 15.

Maybank Investment Bank Berhad (Maybank IB) raised their FY24-25E earnings forecast by 3% p.a. after updating full-year FY23 figures.

Maybank IB’s FY24-26E assumptions are: i) utilisation rates of 82%/85%/83%; and ii) blended average DCRs of USD112k/130k/132k respectively.

Post-adjustments, Maybank IB maintains their BUY call with a marginally higher TP of MYR0.35 (MYR0.34 previously) based on 14x PER on mid-FY25E EPS (unchanged).

4Q23: Strongest quarter in 9 years

The 4Q23 core net profit of MYR66.7m (>54x QoQ, >24x YoY) brought cumulative FY23 core earnings to MYR99.5m (FY22: -MYR71.7m), beating consensus estimates by 72% and 70% respectively.

Key variances against Maybank IB’s forecast were: i) a higher-than-expected blended utilisation rate of 94% in 4Q23 (vs. our estimates of 89%); and ii) significant margin expansion due to high operating leverage (+20.2 ppts QoQ at EBIT level).

Maybank IB noted that the overall average DCR in 4Q23 was higher at USD99k (vs. USD97k in 3Q23), which was pretty in line with our projections.

Two more strong quarters ahead, surprise DPS 0.25 sen

With expectations of: i) blended utilisation rate of 94% and an average DCR of MYR98k in 1Q24E; and ii) blended utilisation rate of 89% with an average DCR of MYR107k in 2Q24E, Maybank IB believes that Velesto will rake in at least 2 more strong quarters ahead, before having 3-4 SPS (special periodical survey) in 2H24.

Velesto announced a DPS of 0.25 sen for FY23

The announcement of 21% DPR  came in as a surprise to Maybank IB as they now forecast a DPR of 30% for FY24-26E.

Tight supply to continue driving DCRs in 2024-2025E

Based on Maybank IB’s analysis, they understand that the JU drilling rig market is tight, where demand outstrips supply due to elevated crude oil prices. As at Dec 2023, the highest DCR recorded for a regional competitor’s rig was USD165k (vs. an average of USD131k a year before).

Maybank IB expects Velesto to continue riding on higher DCRs as the group wins new jobs/renews its existing contracts in upcoming quarters.

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