92% fleet utilisation buoys Velesto 3Q results

By Xavier Kong

ANALYSTS attributed the good performance of Velesto Energy Bhd in the third quarter of  its 2019 financial year (3QFY19) to the almost-full fleet utilisation of the group, which caused profit to jump more than three-fold quarter-on-quarter (qoq) to RM33.3 mil.

This marked an improvement to the group’s financials year-on-year (yoy), considering it recorded a loss of RM13.6 mil in the comparative quarter of the preceding year.

For its nine-month period just ended, it returned to the black with a net profit of RM23.5 mil from a net loss of RM47 mil a year ago.

TA Securities analyst Kylie Chan noted that “the outperformance versus our estimates was due to higher-than-expected contribution from the drilling fleet,” adding that the fleet utilisation for the quarter at 92% is a surge from the previous quarter’s 74%.

Kenanga Research analyst Steven Chan concurred, calling the rig utilisation “stellar”, and believed that the outlook for Velesto’s 2020 financial year looked strong, considering most of the group’s rigs have secured contracts.

Affin Hwang analyst Tan Jianyuan noted that the results came in above expectations as well, citing not only the improved rig utilisation, but also the profit turnaround for the group’s hydraulic workover unit (HWU) segment, which had been loss-making in the previous quarter.

“We gather that the HWU business was not a drag (on financials) in 3Q19, recording a low single-digit pre-tax profit, versus the small loss in 2Q19, with one additional HWU contributing to results,” Tan said.

AmInvestment Bank analyst Alex Goh believed the group would be able to support this earnings momentum moving forward, as there was a high demand for rigs in Southeast Asia.

“The group remains optimistic that Petronas’ rig requirements will remain at 16 to 17 units as guided by its 2019-2021 Activity Outlook. Hence, management is confident that its Naga 4 and Naga 7 rigs, which require new contracts by 2QFY20 and 4QFY20 respectively, will be able to secure new charters, which are currently under negotiation,” said Goh.

Also noted is that Velesto expects to extend its Naga 3 charter with Petronas Carigali by 3QFY20 at higher market rates versus its existing daily charter rates (DCR). The group also expects the four charters it secured in April from Petronas Carigali Sdn Bhd to be extended with higher rates as well.

TA Securities and Affin Hwang rate Velesto as a buy with higher target prices of 43 sen and 49 sen respectively. AmInvest maintained its buy call as well, with an unchanged fair value of 46 sen. Kenanga Research maintained its outperform call, with an increased target price of 43 sen.

Velesto closed unchanged at 38.5 sen on Dec 2, with a volume of 25.3 million shares.

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