PETALING JAYA: The termination of the proposed US$63mil (RM257mil) sale of the Naga 3 jack-up drilling rig is a “major setback” for Velesto Energy Bhd
, says BIMB Research.
According to the research house, the termination effectively delays the execution of Velesto’s asset-light transformation roadmap, at least in the near term.
Under the strategy, Velesto was supposed to gradually exit older and lower-specification rigs while concentrating resources on premium assets.
Velesto is 61.33%-owned by four government-linked institutional investors, namely, Permodalan Nasional Bhd (48.32%), Retirement Fund Inc (5.09%), the Employees Provident Fund (4.87%) and Urusharta Jamaah Sdn Bhd (3.05%)
BIMB Research warned that the failed transaction may disrupt the management’s plan to enhance shareholder returns through higher dividends.
The original disposal plan had earmarked RM251.1mil of the proceeds for potential shareholder distributions and general corporate purposes, as well as working capital.
“Without the proceeds from the disposal, the timing and magnitude of future dividend enhancements become less certain.
“That said, we are maintaining our earnings forecasts at this stage, as the termination does not materially alter our operating assumptions,” the research house said in a note to clients.
BIMB Research downgraded the stock to a “trading sell” from “buy” previously, and slashed the target price to 24 sen from 32 sen.
CIMB Research, however, still kept its “buy” rating on Velesto with a 35-sen target price.
Nonetheless, it viewed the sale termination as a “slight negative”, considering that the development removes a potential special dividend catalyst.
It noted that the termination is not expected to materially affect Velesto’s earnings for the financial year 2026 (FY26).
The research house also said that the deal termination did not change its view on the company.
“We believe it is well positioned to benefit from the recovery in local upstream activity and potential tightening of the jack-up rig market.”
Moreover, CIMB Research expects Velesto to remarket Naga 3 for jobs within the South-East Asian and domestic markets starting from the fourth quarter of financial year 2026.
“Demand for jack-up rigs remains healthy, and we believe Velesto should have no issue redeploying the rig as the company has been bidding for new jobs using third-party rigs.
“Operationally, retaining ownership of Naga 3 will offer the group higher earnings upside, especially during a demand upcycle, as owned rigs provide better margins compared with third-party rigs.
“However, in the absence of new work, Naga 3 could continue to incur stacking and maintenance costs while diluting overall fleet utilisation.”
After imputing Naga 3’s earnings contribution, CIMB Research has increased its earnings forecasts for FY27 and FY28 by 14% and 13.2%, respectively.
“Furthermore, downside risks to our call and forecasts include the entry of new jack-up rig supply into the domestic market, delays in upstream investment, and lower-than-expected oil prices, which could make new upstream investments unfeasible.”
In addition, BIMB Research said that while Velesto’s underlying business fundamentals remain relatively intact, investor sentiment is likely to weaken considerably.
“In our view, a large part of the share price rally of more than 70% over the past 12 months was driven by confidence in the management’s asset monetisation strategy and the prospect of enhanced dividend payouts.
“Both themes formed the core of the market’s investment case for the stock over the past several months.
“With the Naga 3 disposal now terminated, investors may begin to reassess those expectations.
“The market is likely to question the visibility of future asset disposals and the timing of capital returns, reducing the attractiveness of the stock’s previous re-rating story.
“As a result, we believe the recent share price strength could reverse as investors unwind positions established on the back of the original strategic and dividend narratives,” the research house further added.
