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Maybank Research lowers Velesto to sell

KUALA LUMPUR: Maybank Investment Bank Research has downgraded Velesto to sell from buy and cut its target price to 11 sen or by 63% from 16 sen as it cut the earnings outlook due to the operational setback on its Naga 7 rig.

The research house said on Tuesday it had cut the FY21-23 earnings by 58%-144% and there was a change in view to reflect the uncertainty over the rig’s long-term availability at this juncture.

Based on various sources gathered, an unfortunate incident happened to Velesto’s Naga 7 rig during operations. One of its legs “punched through” during first preloading, which resulted in the rig tilting around 10 degrees.

That said, the rescue operation on Naga 7, led by Perdana Marathon and Armada Tuah vessels was a success, with zero casualty reported. All the 101 crew members onboard Naga 7 are safe and have been transferred onshore.

Naga 7 is still floating. The potential damage will be further assessed.

Recall that Velesto recently secured an US$8mil contract from ConocoPhillips for the charter of Naga 7 to drill up to three wells offshore Sarawak from 2Q21.

“Following this incident, we cut our FY21-23 earnings by 58%-144%, taking into account the lower utilization realised from the Naga 7 impact.

“Our model now conservatively assumes zero utilisation for Naga 7 from May 2021 to 2023, pending updates on the rig’s operability, ” it said.

Maybank Research said its revised jack-up utilisation is now at 52%/ 63%/ 68% for FY21/22/23 respectively (vs. 62%/ 74%/ 80% previously).

At this juncture, the research house thinks Velesto is unlikely to return to profitability until FY23. The Naga 7 incident, in its view, has delayed its earnings turnaround by another year.


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