PETALING JAYA: Analysts expect Velesto Energy Bhd
’s latest US$157mil contract from PETRONAS Carigali Sdn Bhd to provide long-term earnings visibility and utilisation stability moving forward.
In a report, Hong Leong Investment Bank (HLIB) Research said it had raised its financial year 2026 (FY26) and FY27 earnings forecasts by 8.7% and 4.1% respectively to incorporate the incremental contribution from the contract, with a daily charter rate (DCR) assumption of US$90,000 per day.
Moving into FY26, the research house understood that Velesto is shifting strategy focus towards longer-term contracts, with the latter’s current RM1.3bil order book and RM3.7bil tender book, consisting of over 80% bids for contract periods of at least 12 months.
The group is also progressing towards an asset-light strategy, including potentially chartering of third-party rigs.
“We believe margins will remain supported in FY26, underpinned by continued overhead rationalisation, a leaner operating cost base, and the absence of further special periodical survey-related downtime.
“We also gather that Velesto will dispose of its non-core hydraulic workover unit assets,” it added.
HLIB Research, which upgraded the stock to a “buy” call with a target price of 29 sen, is also positive on Velesto’s strengthening balance sheet.
This followed the completion of its capital reduction exercise, the disposal of Naga three which will support a bumper dividend, and the securing of long-term contracts that support healthier cash flow generation and underpin its dividend-paying capacity.
An analyst with a research house said the contract win would put four out of five rigs of Velesto under charter in FY26 with only Naga six required to secure another charter in in the second half of 2026.
TA Research, in a note to clients, said the award is broadly in line with expectations.
Based on the disclosed contract value, the research house estimated an implied DCR of about US$87,000 per day, below its prior DCR assumption of US$100,000-US$110,000 per day for Naga two.
While the secured rate appears conservative relative to its forecasts, TA Research said this reflected the management’s strategic focus on locking in longer-tenure contracts to enhance earnings stability, rather than maximising near-term spot rate upside.
The research house has also trimmed its earnings forecasts for FY26, FY27 and FY28 by 9.3%, 8% and 11.5% respectively.
It maintained a “sell” call on the stock, lowering the target price to 26 sen from 28 sen previously.
Kenanga Research, in a note to clients, described the new contract win as positive but stated that “it is below our average assumption of US$110,000 per day.”
However, the higher expected rig utilisation is expected to balance out the lower DCR, as its assumption of utilisation for Naga two is at 80%.
The research house has a “market perform” call on the stock with a target price of 32 sen per share.
