Velesto to see best quarterly performance in years for 4Q23, growth to sustain into FY24
KUCHING: Velesto Energy Bhd’s (Velesto) fourth quarter of 2023 (4Q23) results which are set to be released next month, are expected to be the group’s best quarterly performance in years, analysts at Maybank Investment Bank Bhd (Maybank Research) say.
In a research report, Maybank Research said it expect Velesto’s 4Q23 utilisation rate to be high at 89 per cent while its average blended daily charter rate (DCR) will sit higher at US$97,500. In contrast, the group’s 3Q23 results saw its utilisation rate at 62 per cent while its average blended DCR at US$97,000.
These new expectations now imply that Velesto will likely rake in a 4Q23 core net profit (CNP) of RM25 million, a vast improvement from its registered 3Q23 CNP of RM1.2 million.
Barring any unforeseen cost swings, the research arm reckons that this would become the group’s best quarterly performance since 3Q19.
This robust performance is expected to continue for the year ahead as analysts at the research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined that Velesto will likely also enjoy stronger DCRs in financial year 2024 (FY24) following the contract renewals of four rigs.
“In addition to Naga 8 which has secured a DCR of US$137k per day, Naga 2, 4 and 5 will undergo charter renewals at various points in FY24. Velesto indicates that the DCR for new contracts will fall within the range of US$120,000 to US$130,000.
“Hence, this is expected to push the average DCR for the group close to US$120k, potentially surpassing our initial expectation of US$107,000 for FY24,” Kenanga Research shared.
That said, Velesto’s utilisation rate for FY24 is expected to remain flattish due to significant maintenance activities as its management has guided that there will be four new special periodical surveys (SPS) scheduled in FY24.
The four rigs in questions are Naga 2, 3, 5 and 6 and their estimated major maintenance cost is around US$10 million per rig which the group plans to depreciate over the next five years.
With the new expectations of higher DCRs in FY24 but flattish utilisation rates, Maybank Research opined that Velesto will likely be in a net cash position as early as the end of FY25 without a dividend policy.
“We believe it is reasonable to now project a dividend payment at a 30 per cent payout of PATAMI in FY25E, amounting to approximately 0.9sen per share,” it said.
To reflect these new estimates, Maybank Research tweaked its FY23, FY24 and FY25 net profit forecasts by -5, -10 and 6 per cent to RM58 million, RM160 million and RM239 million, respectively.
Furthermore for FY23, FY24 and FY25, their revised utilisation rate assumptions are 81, 82 and 85 per cent, while their blended DCRs are US$93,000, US$112,000, and US$130,000, respectively.
Maybank Research maintained a ‘buy’ call on Velesto with a higher target price of 34 sen from 30 sen based on a rolledover 14-fold price earnings ratio (PER) on mid-FY25E EPS.
Meanwhile, Kenanga Research has raised its FY23 and FY24 earnings forecasts by 20 to 46 per cent to CNPs of RM56.1 million and RM140.1 million, respectively. It also raise its DCR assumptions to US$93,333 for FY23 and US$118,300 for FY24; and their utilisation rates to 83 per cent for FY23 and 84 per cent for FY24.
To reflect this new optimism, Kenanga Research raised its ‘Underperform’ call on Velesto to ‘Market Perform’ along with a revised higher target price of 26 sen from 17 sen that is based on a 15-fold FY24F PER, a slight premium to regional peers due to Velesto’s supportive client, Petronas.