PETALING JAYA: Velesto Energy Bhd
’s rig utilisation rate is expected to face further pressure in 2025, unless new contracts are secured for its jack-up rigs.
The provider of drilling and oilfield services to the oil and gas industry plans to leverage downtime to accelerate required maintenance and upgrades for Naga 8 by the first quarter financial year 2025 (1Q25), so that the rig will meet inspection requirements until 2027.
TA Research said the readiness enables Velesto to capture potential opportunities should the market rebound. The company’s current order book stands at RM876mil in firm contracts with clients.
TA Research raised its FY24 earnings forecast for the company by 24.4% to account for the stronger-than-expected performance in 3Q24.
However, with the suspension of Naga 8 and an anticipated challenging outlook, the research house lowered its FY25 and FY26 forecasts by 41% and 58%, respectively, after revising down utilisation rates by two to five percentage points and daily charter rates (DCR) by 4% to 9%.
Maybank Investment Bank Research (Maybank IB Research) said it believes the early suspension of the Naga 8 contract without compensation is a short-term setback for Velesto.
Maybank IB Research cut its FY25 an FY26 earnings by 33% and 35%, respectively, on account of lower utilisation rate assumptions to match the group’s latest rig schedule guidance.
The research house reduced its target price (TP) to 25 sen a share from 32 sen and retained its “buy” call for the stock.
Hong Leong Investment Bank Research downgraded the stock to a “hold” with a lower target price of 17 sen from 35 sen a share, previously.
It maintained its FY24 earnings but cut FY25 and FY26 forecasts by 31% and 16%, respectively.
CGS International Research (CGSI Research) said the notice to terminate the Naga 8 charter amounts to 11% of Velesto’s capacity next year. This lowers Velesto’s secured utilisation in FY25 from 63% previously to 52%, versus its own FY24 forecast of 86%.
If Naga 5 secures a long-term charter starting in June 2025, Velesto’s FY25 utilisation may rise to 62%. It assumes that it will rise further to 70%, CGSI Research said.
The research house added that the business environment for jack-up rigs had deteriorated. For new contracts that have yet to be signed by Velesto, the research house cut its DCR assumptions from US$130,000 per day to US$115,000 per day in FY25 and to US$100,000 a day in FY26.
It downgraded its call from “add” to “reduce” with a target price of 14.5 sen a share.
It expects Velesto’s net profit to bottom only in FY26, two years from now, which would be a potential de-rating catalyst.
The upsides for the company are better-than-expected outcomes from bidding exercises to secure more work.
