FY21 results in line
Maintain BUY and MYR0.23 TP
FY21 results came in line; 100% of our FY estimates, ending with a solid 4Q21, its strongest quarterly performance this FY. We are upbeat on its FY22 outlook. It is in an entrenched position to capitalise on higher offshore O&G activities (higher DCRs & tenures) on the back of a steadier financial standing (net debt/ EBITDA of 1.2x now vs. 3.3x in FY20). Optimising utilisation and de-gearing remain its key KPIs over next 12 months. Our TP is pegged to 1x EV/ replacement value (unchanged).
4Q21: Stronger QoQ
Velesto reported core net profit of MYR3m in 4Q21 (vs. –MYR48m in 3Q21), which took FY21 core loss to MYR181m, in line with our FY estimate. The QoQ strength was mainly due to the higher JU utilization (78% vs. 3Q21: 50%). 6 JUs were on charter in 4Q21 (vs. 4 in 3Q21). Of the 6: (i) 3 JUs, namely Naga 2, 4 and 8 achieved a full 3-month utilisation for 4Q21 (vs. 2 units; Naga 5 & 8 in 3Q21) while (ii) Naga 5 & 6
rigs realised a 2-2.5 month impact and (iii) Naga 3 remained off-hire, idle since end-4Q19. Net debt/ EBITDA stood at 1.2x as at Dec 2021 (vs. 3.3x a year ago), a positive.
Expects a stronger FY22-24
Our estimates are unchanged, on a stronger FY22 outlook. We expect Velesto to turn around financially in 2022, largely fuelled by higher utilisation (69% vs. 48% in FY21). This is a realistic assessment, for the domestic and global marketed utilization for JUs is on the rise, on the back of a strong oil price market. Velesto is currently tendering for 17 prospects (11 short-term charters; 6 tenders in Malaysia) with combined values of MYR1.9b. While our DCR assumptions of USD70k for FY22-23 are unchanged, we do not rule out higher rates. Every USD1k rise in DCR would raise Group’s earnings by MYR6m p.a.
ESG development
On the ESG aspect, Velesto, a constituent of the FTSE4Good Index Series will continue to improve on its sustainability journey and milestones over the next 12 months, after having rolled out its Sustainable Blueprint framework in 2021.