PETALING JAYA: Analysts remain upbeat on Velesto Energy Bhd
’s earnings prospects, given its strong regional tenderbook that positions it well against the possible Petroliam Nasional Bhd (PETRONAS) capital expenditure downcycle in 2025.
Maybank Investment Bank Research (Maybank IB) in a report said the recovery in the jack-up rig market from the second half of 2025 should also enable the stock to re-rate on improved earnings visibility thereafter.
“Furthermore, its strong balance sheet could enable Velesto to see an improved dividend payout ratio.”
Maybank IB noted that Velesto recorded a significant increase in its tenderbook in the third quarter of 2024 (3Q24) to RM5.4bil from RM3.2bil at end-2Q24.
“The upliftment was mainly backed by an increase in the long-term tenders for jack-up rigs, Naga 3 and Naga 8, which we believe would be deployed in Thailand and Vietnam.”
Maybank IB said the oil and gas company’s move to take on regional jobs would bode well over the next 12 to 18 months to hedge against the possibility of PETRONAS’s capital expenditure downcycle in 2025.
“While the long-term tenders, once secured, are likely to be at lower dividend payout ratios, they will lift group utilisation rate and provide earnings visibility from the second half of 2025 till the end of 2026.”
Maybank IB said it expects the jack-up rig market to go through a temporary breather, as the average demand is likely to fall in the first half of 2025.
It said the market is expected to recover in the second half of 2025/2026 onwards, due to additional supplies coming from Saudi Arabia and PETRONAS’ capital expenditure deferrals.
“In our view, to re-rate and regain investors’ confidence, Velesto needs to win regional long-term jobs to gain earnings certainty in financial year 2025 and 2026 and beyond; and/or raise its dividend payout ratio due to its strong/healthy cashflow generation.”
For the third quarter ended Sept 30, 2024, Velesto’s net profit surged to RM42.93mil from RM1.22mil in the previous corresponding period, while revenue rose to RM352.36mil from RM289.24mil a year earlier.
In a Bursa Malaysia filing following the announcement of its latest quarterly financial results, Velesto said the higher revenue was mainly due to higher utilisation and average daily charter rates for jack-up rigs (under drilling services) and extension of integrated rig, drilling and completion projects.
Looking ahead, Velesto said the overall global oil and gas industry’s fundamentals are moderate with the benchmark Brent oil price consensus forecast hovering between US$70 and US$80 per barrel.
“The US Energy Information Administration has forecast global oil consumption to grow at a slower pace to 104.4 million barrels per day.
“This is as global gross domestic product growth in 2025 is expected to remain low at 3.2%, while geopolitical risk remains high.”
Velesto said global and regional demand for jack-up rigs is expected to slow down in 2025, putting downward pressure on utilisation and daily charter rates.
“Drilling activity in Malaysia is also expected to decline due to a reduction in exploration activities,” it said.
Velesto said it expects a decline in the utilisation rates for the fourth quarter of 2024 and the year 2025.
“This anticipated decline is attributed to the scheduling of special periodical surveys (SPS) and five-yearly maintenance for three of our rigs, namely, Naga 5, Naga 8 and Naga 3.”
Velesto noted that on Nov 27, Naga 8 received from the client a notice of suspension effective Feb 10, 2025, or upon the completion of contract demobilisation, whichever occurs later.
“This is due to early completion of the drilling programme.
“We are taking this window of opportunity to expedite the SPS for Naga 8 to March 2025, to prepare it for upcoming opportunities which we are currently bidding for.”
On the other hand, Velesto said Naga 2, Naga 4 and Naga 6 will remain contracted until the first quarter of 2026, ensuring continued operations and stability in our rig utilisation.
“As of the end of October, Velesto’s remaining orderbook stood at RM0.9bil, which will support the group’s financial performance until 2026.”
The company said it will continue to actively pursue tender opportunities in both domestic and regional markets.
“While we are optimistic about our financial performance for the 2024 fiscal year, we maintain a more cautious outlook for 2025.”
