KUALA LUMPUR: Velesto Energy Bhd is expected to benefit from vibrant industry activities with more drilling contracts in the coming months, said Affin Hwang Capital.
Affin Hwang said Velesto's third quarter (Q3) revenue had grown 90 per cent year-on-year (YoY) to RM174 million on the back of a higher rig utilisation rate of 78 per cent.
This was significantly higher than the 51 per cent recorded in Q3 2021, 39 per cent in Q1 2022 and 41 per cent in Q2 2022 as the level of activity rose in tandem with rising global oil prices.
"Though Velesto returned to the black in Q3 2022, the earnings recovery was weaker than expected on softer margins partly affected by an undisclosed negative forex impact relating to its US dollar loans.
"We expect Velesto to record sequential stronger earnings in Q4 2022 with an estimated higher 86 per cent utilisation rate for the quarter," said Affin Hwang.
The company's nine-month losses narrowed by 49 per cent YoY to RM78 million on the back of higher rig utilisation of 53 per cent, as compared to a lower 39 per cent recorded in 9M21.
Velesto widened its 2022 loss forecast from RM28 million to RM43 million to reflect the lower margins.
"Nevertheless, we expect a stronger earnings turnaround in 2023-2024 given likely higher utilisation rates of 70-74 per cent (from 65-70 per cent) and US$80,000-US$81,000 charter rates (from US$76,000-US$79,000)," it said.
Affin Hwang maintained a "Buy" call on Velesto with a higher target price of 17 sen from 11 sen.
"The vibrant industry activities are expected to benefit Velesto with more drilling contracts in the coming months at higher charter rates. Velesto's edge of being the largest local jack-up rig operator puts it in a strong position.
"Downside risks to our call include lower rig utilisation and charter rates, continual delays in clients' capex spending, higher-than-expected operating costs, and lower operating margins," it added.