PETALING JAYA: Velesto Energy Bhd
is expected to see improved rig utilisation and earnings contribution from the return of its Naga 3 jack-up drilling rig to active operations, following a new contract secured from Petroliam Nasional Bhd’s (PETRONAS) subsidiary, PETRONAS Carigali Sdn Bhd.
The award provides a near-term earnings boost for the oil and gas services provider, with drilling operations scheduled to commence in November 2026.
Hong Leong Investment Bank (HLIB) Research said the contract was largely expected, as it had previously highlighted that Naga 3 was undergoing preparations in Labuan for potential redeployment.
Based on its channel checks, the contract is expected to span two to three months, including the optional well.
The rig was previously earmarked for disposal to PT Indonesia Drilling Energy for US$63mil (about RM258mil), before the transaction was mutually terminated in July 2026.
HLIB Research said Naga 3 remained available for potential disposal while being remarketed for new drilling contracts.
“A successful disposal could potentially unlock an additional special dividend per share of three sen (17% yield),” it said.
“Factoring in the incremental earnings contribution from Naga 3, we raise our 2026-2027 earnings forecasts by 7% and 6%, respectively, while leaving 2028 estimates unchanged,” it added.
HLIB Research upgraded Velesto to a “buy” from “hold”, with a higher target price of 20 sen from 19 sen, pegged to 12 times financial year 2027 (FY27) price-to-earnings (P/E).
It added that the share price correction of more than 50% since early April had priced in much of the downside risk, while the stock offered an attractive dividend yield of about 14%.
BIMB Research also upgraded Velesto to a “buy” from “hold”, citing the recent share price weakness and an attractive dividend yield of about 10%. However, it kept its target price unchanged at 24 sen.
BIMB Research viewed the Velesto’s recent award positively, describing it as Naga 3’s first drilling assignment since the proposed disposal was terminated.
Assuming a two-month campaign and prevailing regional jack-up day charter rate (DCR) of US$90,000 to US$100,000 daily, it estimated the contract could contribute about RM25mil in revenue, equivalent to 4% of its 2026 forecast.
“We believe the current environment is supportive of drilling activity, as lower jack-up DCR reduce well costs while elevated oil prices improve project economics,” BIMB Research said.
“While the region continues to face pressure from an oversupply of rigs redeployed from the Middle East, which has weighed on DCR, we view this as a potential opportunity for Velesto to further expand its third-party rig management business,” it added.
Meanwhile, TA Research estimated an implied DCR of about US$97,000 daily over the two-month contract period, with a possible extension into January 2027 if PCSB exercises the optional well.
“We view this award as a near-term earnings opportunity, with Naga 3 potentially securing another short-term contract in the first half of 2027 (1H27) ahead of a longer-term deployment opportunity from 2H27.”
TA Research raised its 2026 earnings forecast for Velesto by 3.5% following the award, maintaining a “buy” recommendation and target price of 25 sen based on 15 times 2027 earnings.
