KUALA LUMPUR (Nov 5): Velesto Energy Bhd (KL:VELESTO) is now more attractive with a stronger earnings outlook as the last of its idle drilling rig returns to work, analysts said on Thursday.
The contract for Naga 3, originally put on sale before the deal was scrapped, is expected to lift this year’s earnings by 4%-7% depending on the daily charter rates, according to BIMB Securities and Hong Leong Investment Bank. Both also upgraded the stock to 'buy', noting recent corrections.
“We view the award positively as this marks Naga 3’s first drilling assignment after the proposed rig disposal was terminated, effectively bringing the rig back into active service,” BIMB Securities said.
Shares of Velesto have lost nearly half of their value from this year’s high in April, weighed by weaker than expected results amid declining daily charter rates and competition. The termination of the sale of Naga 3 also killed prospects of a special dividend.
Naga 3 was previously being sold to PT Indonesia Drilling Energy for US$63 million, or about RM258 million, before the transaction was called off in July. On Wednesday, Velesto announced that it has secured a contract for Naga 3 to drill one firm well and one optional well.
The value and the end date of the contract from PETRONAS Carigali Sdn Bhd, the exploration and production arm of PETRONAS, were not disclosed. However, BIMB Securities and Hong Leong Investment Bank estimate that the job likely commanded US$90,000-US$100,000 per day.
Further, Velesto’s attractive dividend yield of around 14% should provide downside support amid persistent near-term earnings headwinds, Hong Leong Investment said.
The stock now has seven 'buy', two 'hold', and no 'sell' calls among research houses tracked by Bloomberg. The average target price is 28 sen, implying potential upside of 65% in the next 12 months from its last price of 17 sen.