KUALA LUMPUR (May 8): Offshore drilling firm Velesto Energy Bhd (KL:VELESTO) is expected to report that its net profit may more than tripled in the first quarter (1Q) from a year earlier with all of its rigs utilised, Maybank Investment Bank said.
Net profit will likely come in at RM45 million-RM50 million for the three months ended March 31 when the company announces its results on May 23, Maybank IB said in an earnings preview note. That compares to RM14.22 million in 1QFY2023 and RM66.7 million in 4QFY2023.
A drilling job with a daily charter rate of about US$165,000 (RM781,536) won by another company indicates that the market is still currently “very tight” and rates are still rising, Maybank IB said. “Local drilling outlook is still robust, in our view.”
Shares of Velesto have climbed nearly 20% so far this year amid optimism that elevated oil prices will further boost demand for its services, and analysts broadly think there is more upside to the company valued at over RM2.2 billion on Bursa Malaysia.
A majority of seven out of eight analysts covering Velesto have "buy" calls on the stock and only one "hold" rating. The consensus 12-month target price is 33 sen, suggesting a further 18% gain from current prices.
Still, the stock has been under pressure since April amid concerns that Saudi Aramco's broader suspension of jack-up rigs may prompt owners to send their idling assets elsewhere and pressure charter rates.
Velesto announced in March 2024 that it has secured contract extensions for Naga 2, Naga 4 and Naga 6 for the next two years while its Naga 8 is contracted till October 2025. That leaves only Naga 3 and Naga 5, which according to Velesto, are in bids and negotiations for contracts till end-2025, Maybank IB noted.
“With that, we conclude that Velesto is pretty much shielded until then, as all of its rigs will be fully utilised for the next 18 months,” Maybank IB noted. Utilisation rate will likely come in at 94% with an average blended daily charter rates of US$98,000, according to Maybank’s forecast.
Maybank IB added that it is confident that Velesto will continue to show earnings growth over the next two years.