PETALING JAYA: Analysts are upbeat on Velesto Energy Bhd
’s prospects after it secured a two-year contract extension for the provision of three jack-up rigs to PETRONAS Carigali Sdn Bhd (PCSB) for a total contract value of US$265mil.
In a note, Kenanga Research said Velesto’s contract extensions for its Naga 2, Naga 4 and Naga 6 jack-up rigs will have a contract value of US$73mil, US$95mil and US$97mil, respectively.
The extensions are for an additional two years until February 2026, while the estimated implied daily charter rates (DCRs) for Naga 2, Naga 4 and Naga 6, based on their extension values, are US$114,300, US$130,000, and US$133,000, respectively.
Kenanga Research said these figures exceeded the initial DCR assumption of US$120,000 for financial year 2024 (FY24), indicating a favourable outcome for Velesto.
“We like Velesto for the positive outlook of the local jack-up rig market – buoyed by strong demand amid a pick up in upstream capital expenditure, its strengthened bargaining power as a result, paving the way for better DCR on contract renewals and potential upside surprises to its margins on early signs of easing in labour cost inflation,” it said.
Kenanga Research said it maintained its “outperform” call on the oil and gas services firm but lifted its target price (TP) to RM0.34 from RM0.31 previously, pegged to 15 times FY25, at a slight premium to valuations of regional drilling peers.
It added that it will keep its FY24 forecasts unchanged and adopt a conservative stance because of the impact from four special periodic surveys that could potentially affect the overall rig utilisation.
“However, we have raised our FY25 earnings forecast by 10%, adjusting for a higher average DCR of US$125,000, up from US$122,500, reflecting an improved outlook for DCRs,” it said.
Hong Leong Investment Bank (HLIB) Research said the contract extensions were well expected.
“We estimate the renewed DCRs for these rigs to be about US$140,000, which is reasonably higher than the current rate of US$100,000 to US$110,000,” it said.
According to HLIB Research, higher DCRs will only contribute meaningfully to Velesto from the third quarter of this year (3Q24) onwards for a number of reasons.
“First, Naga 2 is currently working until the middle of the 2Q24 and thereafter, only starts a brief job with PCSB between the end of 2Q24 and early 3Q24.
“Second, the existing job for Naga 6 with PCSB will only lapse by the end of 2Q24 and thereafter, a new notice of assignment will become effective from 3Q24 onwards.
“This makes Naga 4 the only rig that will see the renewed DCR from 2Q24 onwards, following the completion of an existing job with PCSB in 1Q24,” it noted. HLIB Research added that it expects the overall rig fleet utilisation in 1Q24 and 2Q24 to stand above 90%.
