KUALA LUMPUR (Nov 28): Trading of shares in Velesto Energy Bhd stayed muted in the early session on Tuesday, after the company secured an extension of its Naga 8 jack-up rig for 18 months at a daily charter rate (DCR) of US$135,000 (RM630,247.50), which was deemed within expectations.
At 9.15am, Velesto was unchanged at 23.5 sen, with 451,500 shares traded.
The stock has gained about 62% year-to-date, and hit a high of 27.5 on Feb 24.
Kenanga Research has maintained "underperform" on Velesto at 23.5 sen, with an unchanged target price (TP) of 19 sen. It is positive on the development, which it said had already been reflected in its forecasts.
It said the rest of Velesto’s rigs had mostly been chartered out at a DCR of US$90,000 until the first half ending June 30, 2024 (1HFY2024).
“With the Naga 8 extension, it would bring the average DCR to US$100,000 [for the whole fleet], which is consistent with our FY2024 assumption.
“Nevertheless, the latest win indicates that the local jack-up rig market is booming, and if this sustains into 2HFY2024, the group might be able to renew charters for the rest of the fleet at higher rates," it said.
Meanwhile, Hong Leong Investment Bank (HLIB) maintained its “hold” call on the stock, with an unchanged TP of 25 sen, pegged at a price-earnings multiple of 14 times FY2024 profit.
The research house said although it is positive on the job win, this development is well expected.
“We have imputed the utilisation and DCR assumptions into our forecasts.
“We estimate the DCR following the contract extension to range from US$125,000 to US$130,000.
“We also view the renewal of this legacy contract positively, given the significantly higher rates as compared to the estimated prevailing DCR of US$80,000, reflecting the tight availability of jack-up drilling rigs as offshore activities are on the rise,” it said.
HLIB said that based on house checks, Velesto will prioritise securing long-term contracts going forward (for more than 12 months) to capitalise on the current tight market and elevated DCRs, which HLIB deems a win-win situation for both Velesto and its clients.
It said that according to Westwood Global Energy Group, contract durations for offshore drilling rigs will continue to lengthen with high utilisation rates as upstream players seek to secure drilling rigs amid decreasing availability.
“We believe the global jack-up rig crunch will continue to benefit Velesto by elevating its fleet utilisation and DCRs.
“However, we reckon Velesto’s risk and reward profile is balanced at this juncture, as the market has likely priced in the earnings upside for FY2024,” the research house said.