UOBKH Research has upgraded its financial years 2024 to 2026 earnings forecast by 11%, 33% and 49%, respectively.
PETALING JAYA: Velesto Energy Bhd
is expected to experience a weaker second half of 2024 (2H24) in terms of rig utilisation, due to three special periodical surveys (SPS) for its rigs.
However, UOB-Kay Hian (UOBKH) Research commends the group’s ability to replenish contracts, particularly for Naga 3 (N3).
Nonetheless, the risk of a potential project rationalisation in Sarawak poses a significant threat, which could materially impact its N5.
UOBKH Research upgrades its financial years 2024 to 2026 (FY24 to FY26) earnings forecast by 11%, 33% and 49%, respectively.
It retains its five times enterprise value over earnings before interest, tax, depreciation and amortisation assumption.
The brokerage upgrades the stock to a “buy’’ with a target price of 25 sen a share.
It believes Velesto Energy will be able to achieve better operational efficiency as rig active management improves, increasing its daily charter rate forecasts for FY24 to FY26 from US$115,000, US$120,000 and US$100,000, respectively, to US$118,000, US$125,000 and US$105,000.
However, the research house is mindful of the high operational expenditure for the group, assuming that the abnormally high cost provisions in the second quarter of 2024 (2Q24) may persist.
Meanwhile, the transition of Malaysia’s oil and gas industry, with Petroleum Sarawak Bhd assuming the role of gas aggregator from Petroliam Nasional Bhd effective July 2024, has created some vacuum in the latter’s rig requirements.
For example, the replacement rig for PV Drilling III, which will be moved to Indonesia by year-end, has not been identified.
UOBKH Research noted that N5 will have the greatest risk in securing contract replenishment in the event of a rationalisation in Sarawak projects.
Based on Velesto Energy’s latest rig schedule, N5 will be idle after the completion of the SPS at end-2024.
The company is expected to register a 60% utilisation rate for 3Q24, from an all-time high of 96% in 1H24, due to the two SPS for N5 and N6 in the quarter.
N5, which has offline capability, will be moved to Singapore this month while N6, the only rig that has offline capability and “High Temperature High Pressure” operations, arrived in Labuan on July 24 for its second SPS, the research house said.
UOBKH Research said N2 completed its mandatory five-year SPS at the end of last month, after being dry-docked in Singapore since June, and will be deployed to the D18 oil field in Sarawak.
