PETALING JAYA: Oil and gas drilling services provider Velesto Energy Bhd
is unlikely to be impacted by the termination of a four-year charter of one of the company’s jack-up rigs, as another job can be secured in the coming months, says Kenanga Research.
Considering the termination of the contract as neutral, the brokerage said Velesto has started marketing the rig, Naga 8, to potential clients and the daily charter rate (DCR) could be slightly higher.
“We remain confident that Velesto could secure another charter in the near term due to the increasing demand for jack-ups in the region while the supply expansion of rigs is minimal,” it said.
Besides the terminated Ketapang contract, Naga 8 has been hired out until the end of July for another contract.
It pointed out that the termination may benefit the company from financial year ending Dec 31, 2027 (FY27) on rising DCR (earlier DCR was at US$89,000/day and with current market quotations of US$91,000/day or higher) if the company does not lock its rigs into charters for long durations.
Despite the termination, Kenanga Research has upgraded the stock to an “outperform” from “market perform” with a target price (TP) of 32 sen pegged to 1.2 times FY27 price-to-book value, saying that the industry outlook “is in its early phases of recovery”.
“If no charter replacement is secured in the second half of FY26, the loss of Naga 8 income could be RM11.5mil, but we believe another charter would be secured; hence, we leave forecasts intact,” it said.
The company recently announced the cancelled sale of the 16-year-old Naga 3 because the transaction was not completed by the end of June.
The sale was part of its asset-light transformation roadmap, which included letting go of older rigs while focusing on premium assets. The sale cancellation has led to a fall in the company’s share price as there was an anticipated special dividend of three sen for FY26 on top of the three sen that had been declared.
“We believe that the recent weakness in share price has overcorrected for weaker dividend outlook (particularly after Naga 3 sale cancellation) and believe the rig market could improve further from FY27 if upstream demand returns,” it said.
It added that the stock call and TP reflect the research house’s confidence that the company would pay dividend above profit after tax to match closer to its operating cash flows (RM300mil per annum).
