PETALING JAYA: Velesto Energy Bhd
deserves a premium valuation due to the stock’s appeal as a dividend payer and its share price decline has priced in all the negatives, according to UOB Kay Hian (UOBKH) Research.
The research house upgraded its call on Velesto to “buy”, even as the stock tumbled by over 23% since April this year.
UOBKH Research said the termination of the Naga 3 rig sale might partly be a reason for the drop in share price.
The termination effectively eliminated a special dividend scenario of three sen per share or a 12% yield.
The stock was up 6.12% on the day yesterday and closed at 26 sen. UOBKH Research’s target price for Velesto is 29 sen.
Looking ahead, the research house said Velesto will continue to benefit from its strong captive market positioning in the South-East Asian jack-up rig market as long as it maintains its superior execution and asset maintenance.
Velesto excels compared to its peers in terms of 99% operational uptime, lean balance sheet, and its captive market positioning in South-East Asia provides cash flow certainty.
UOBKH Research also highlighted that the Naga 3 will not be a major earnings drag for Velesto.
This is despite the fact that the asset is now back in Velesto’s hands and the idle rig will be incurring daily warm-stacking costs, which UOBKH Research estimated at US$25,000.
“Moving on from the special dividend, investors will be greatly anticipating Velesto’s next move for Naga 3, which can be earmarked for another buyer (and we think Velesto must enhance its buyer assessment and terms the next time), or redeploy Naga 3 into contracts.
“Although this necessitates dramatic shifts in our forecasts (reprojecting utilisation to 72% based on a fleet of six, instead of 82% based on a fleet of five rigs), we assessed that earnings risk from Naga 3 will be contained.”
Explaining further, UOBKH Research opined that Naga 3’s upgraded costs are likely fully covered.
With the knowledge that Naga 3 was ready for delivery by March 2026, UOBKH Research deduced that Velesto was able to retain and utilise the deposit of US$6.3mil (or 10% of rig value) for the upgrade works of Naga 3 in the yard, given that the deposit was a key condition to be met first before sending the rig to a Singapore yard for upgrades to fulfil the “ready for drilling condition”.
“We understand now that Naga 3 has been relocated to a Johor yard for warm-stacking.
“Naga 3 should be able to secure a job by the fourth quarter of 2026 (4Q26) – unlike its pre-sale status.”
Prior to the sale announcement, Naga 3 was idle throughout 2025 and more than a year.
Both Naga 2 and Naga 3 rigs are among the oldest in Velesto’s fleet, but despite having gone through special periodic surveys, Naga 3 still became uncompetitive when it was idle for a long time.
The newly upgraded Naga 3 is now as good as its competition, added the research house.
