KUALA LUMPUR (Jan 16): Maybank Investment Bank (Maybank IB) has raised its target price (TP) for Velesto Energy Bhd to 34 sen from 30 sen, anticipating the group's best quarterly performance in years in its fourth quarter of 2023 (4Q2023).

In a results preview on Tuesday, Maybank IB said Velesto’s 4Q2023 results will be released on Feb 27, and it expects a robust core net profit of RM25 million, a significant leap from RM1.2 million in 3Q2023, barring any unforeseen cost swings.

This would be the group’s best quarterly performance in years since 3Q2019, it said.

It attributed this to the projected utilisation rate of 89% (compared to 62% in 3Q2023) and an average blended daily charter rate (DCR) of US$97,500 (RM456,933.75), compared to US$97,000 in 3Q2023.

Besides, Maybank IB expects some contract wins for Velesto soon, as the group aims to fill up its rig job schedule since three of Velesto’s rigs are slated to complete or end their current jobs by early 2Q2024.

Although Naga 2, 3, and 4 remain uncontracted in the second half of 2024 (2H2024), Velesto is confident that these three rigs will be chartered, especially following the renewal of the umbrella contract with Petronas in 1Q2024, said Hong Leong Investment Bank (HLIB) in a note.

HLIB opined that Petronas has already indicated its intention to secure these available rigs for their drilling programmes for the remainder of the year, especially amid an ongoing tight market, although details such as DCRs have yet to be ironed out.

“The initial day rates (before 2023) for the Petronas umbrella contract were US$80,000–90,000, but it subsequently got revised upward to US$100,000–110,000 in the later part of 2023, per our estimates.

“We think the day rates of contract renewal with Petronas will likely exceed US$125,000, as we understand that Velesto is now bidding for new jobs with day rates in the range of US$125,000-140,000, in line with market rates,” it added.

Looking further, Maybank IB expects the group will be in a net cash position as early as end-FY2025.

“We have imputed four special periodic surveys (SPS) (with a capex of US$10 million each) in FY2024, resulting in a downward revision in our utilisation rate estimates for 3Q2024 and 4Q2024, respectively.

“And with all of the SPS being loaded in FY2024, coupled with the renewal of contracts on a higher average DCR of around US$130,000 in FY2025, we think that the group will be in a net cash position as early as end-FY2025 without a dividend policy,” it added.

With that, the Maybank IB believes it is reasonable to now project a dividend payment at a 30% payout of profit after tax and minority interest (Patami) in FY2025, amounting to approximately 0.9 sen per share.

With a positive outlook, Maybank IB maintains its “buy” call on Velesto with a higher TP of 34 sen based on a rolled-over 14 times price-to-earnings ratio (PER) on mid-FY2025 estimated earnings per share (EPS), while keeping the PER unchanged.

HLIB also maintains its “buy” rating on Velesto with a higher TP of 29 sen from 25 sen pegged to a PE multiple of 14 times on rolled over FY2025 forecasted profits.