PETALING JAYA: Oil and gas drilling services provider Velesto Energy Bhd
may be a beneficiary of the move by the government to improve energy security, says CIMB Research.
The brokerage, which has resumed coverage of the stock with a “buy” call and a target price of 35 sen implying 20.2 times price-to-earnings based on financial year ending Dec 31, 2027 (FY27) earnings per share, views the company as a direct beneficiary of a pick-up in domestic upstream activity as the country looks to sustain production and improve energy security through higher drilling intensity.
It believes there could be a rise in jack-up rig (JUR) requirements compared to Petroliam Nasional Bhd (PETRONAS) Activity Outlook 2026 to 2029 outlining only nine JURs required for 2026.
“The outlook suggests an improvement to 10 JURs in 2027, but we believe there could be upside risk to the plan should PETRONAS expedite its capital expenditure to boost the country’s energy security and reduce reliance on Middle East crude oil supply,” it said.
A tightening of the global JUR market, driven by energy security measures and the return of Persian Gulf production could lead to a rerating of day rates leading to firmer rates over the medium term.
“Velesto could capitalise on this upside, given that several of its rigs are currently on short-term jobs and/or will be available to bid for new contracts in 2027,” it said, adding that the company’s regional track record widens the market beyond PETRONAS-related work, with two bids in South-East Asia for the second half of 2027 (2H27).
Velesto’s asset-light strategy, in which it has third-party JUR charter arrangements for work, allows it to enjoy earnings upside during a tightening JUR market while mitigating downside risk and limiting exposure to heavy capital expenditure commitments especially during a market downcycle.
It projects a 21.6% year-on-year decline for profit after tax and minority interests in FY26.
This is owing to earnings before interest, tax, depreciation and amortisation margin normalisation due to expiration of several contracts carrying high day rates in 1H26.
However, the research house expects JUR utilisation to remain healthy at 76% in FY26 compared to 72% in FY25.
It noted that 17.7% to 82.5% of the research house’s FY26 to FY28 revenue forecasts have been projected based on contracts, with more contract wins expected to be announced in 2H26 as operators finalise their 2027 investment/development plans.
For its first quarter ended March 31, 2026 (1Q26), net profit nearly halved to RM27.85mil from RM52.61mil in the previous corresponding period, as topline contracted on lower average daily charter rates.
Revenue slipped to RM183.35mil in 1Q26 from RM224.65mil in the previous comparative quarter.
Velesto’s order book stood at about RM1.1bil, supported by a tender book of RM3.1bil as at April 2026.
