KUALA LUMPUR (Feb 28): Hong Leong Investment Bank (HLIB) Research had downgraded Velesto Energy Bhd to “sell” at 28.5 sen with a lower target price (TP) of 21 sen (from 29 sen), and said Velesto reported a 4QFY2022 core net profit of RM2.6 million (-82% q-o-q, -52% y-o-y), which brought FY2022 core net loss to RM71.8 million (FY21: -RM182.1 million).

In a note on Tuesday (Feb 28), the research house said it deemed the results to be below house (FY22f: -RM17.9 million ) and consensus expectations (FY22f:-RM27.9 million).

HLIB said it is expecting a substantially stronger showing in FY2023, as Velesto has guided at significantly higher utilisation rates and daily charter rates for its jack-up drilling rigs.

“With that, we are forecasting Velesto to turn profitable in FY23-24, as we expect to see a pick-up in drilling rig tenders this year amid the current elevated crude oil price environment, leading to increased activity in the sector.

“We downgrade Velesto Energy to ‘sell’ with a lower TP of 21 sen — pegged to an unchanged P/E multiple of 14x on revised FY24f profits.

“We think Velesto’s valuations are rich and has gone past its fundamentals, despite its strong turnaround prospects and growth trajectory,” it said.