Velesto Energy set to return to the black

PETALING JAYA: As activity in oil and gas space pick-up, Velesto Energy Bhd is expected to be profitable in the coming year.

On Friday, the oil and gas service provider announced that it had received a two-year contract to provide jack-up drilling rigs to Petronas Carigali Sdn Bhd.

The project is expected to commence in the first quarter of this year, with an extension option of one year plus one year.

Hong Leong Investment Bank (HLIB) Research said the development is “slightly positive as ground indications are leading to a pick-up in Petronas upstream capital expenditure (capex) in 2022 amidst the current high crude oil prices”.

“We are forecasting Velesto to turn profitable in financial year 2022-23 as we expect to see a pick-up in drilling rig tenders this year,” it said in a report.

It added that while blended utilisation levels in the first quarter of 2022 is expected to remain lukewarm due to the annual timeline of clients’ capex planning cycle, it expects Velesto to perform better in FY22 on a full year basis as compared to FY20-FY21.

The research firm believes that Velesto would not use the Naga 7 insurance proceeds to acquire a new rig as it will continue to optimise its assets and improve balance sheet. It also noted balance sheet improvements where the net debt and net gearing decreased to RM289mil and 0.13 times at the end of last year compared to a net debt and net gearing of RM793mil and 0.35 times at the end of 2020.

However, for now, HLIB is making no changes to its FY22-FY23 earnings estimates where it forecasts a net profit of RM5.1mil and RM22.8mil, respectively.

Velesto recorded a net loss of RM90.8mil in FY21 versus a net loss of RM491.7mil in FY20.

Its shares closed 4.55% higher to 10.5 sen yesterday. It was the most stocks traded with 96.25 million shares done.