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PETALING JAYA: Velesto Energy Bhd is expected to become profitable in the second half of its financial year 2022 (2H22) due to higher demand for its jack-up rigs at improved charter rates.
Affin Hwang Investment Bank Research said Velesto was likely to continue the momentum into 2023.
The company recorded an average 40% rig utilisation rate and core net losses of RM86mil in the 1H22, according to the research house.
“We expect losses to drastically narrow on the back of a strong 2H22 profit turnaround with a higher 72% utilisation, above our earnings before interest, taxes, depreciation, and amortisation and profit after tax breakeven estimates of 35% and 60%, respectively,” Affin Hwang Research )said, after taking into account charter rates at US$76,000 (RM343,000).It added 2023 is shaping to be a strong recovery year for Velesto, driven by solid rig demand and improving charter rates.
Barring any unforeseen disruptions, Affin Hwang Research expects Velesto to end 2022 with a 59% utilisation rate for the full year.
Velesto expects its rig rate to potentially reach 80% of utilisation in 2023 due to the growing demand.
“Velesto also has a competitive edge being the only local monopoly in the jack-up rig space,” Affin Hwang Research said of Velesto’s competitive strength.,
The research house said the drilling market outlook has turned more favourable compared with a quarter ago are demand and charter rates are on the rise.
Velesto’s drilling rig utilisation has gradually recovered from 39% in the first quarter of its financial year 2022 (1Q22) to 41% in 2Q22.
The research house noted that Velesto’s latest tender book saw a significant growth of 88% to RM3bil compared with RM1.6bil in May 2022, driven by higher charter rates and increase in rigs requirement.
Velesto is currently tendering for 20 short-term contracts and nine long-term contracts, valued at RM1.2bil and RM1.8bil, respectively.
“The bulk of the prospects are still concentrated in Malaysia under Petroliam Nasional Bhd’s (PETRONAS) umbrella package, making up 69% of the total tender book,” the research house said.
Importantly, negotiations are ongoing to revise rates under the PETRONAS’ umbrella contract as it is no longer reflective of current market conditions and any positive outcome would be beneficial to Velesto’s earnings.
The research house reaffirmed a “buy” call with a target price of 11 sen per share on Velesto, making no changes to its earnings forecasts.
Affin Hwang Research said Velesto’s earnings had bottomed, while its share price is hovering close to 2020 lows.