Hey there, fellow investors and market watchers!
Today, we’re diving into the latest quarterly report from VELESTO ENERGY BERHAD, a key player in Malaysia’s oil and gas services sector. The company has just released its unaudited condensed consolidated results for the first quarter ended 31 March 2025, and there are some interesting takeaways that warrant our attention. While the top-line revenue saw a dip, the company managed to boost its profitability, showcasing resilience in a dynamic market. Let’s break down what this report tells us about Velesto’s current health and its trajectory moving forward.
Core Data Highlights: A Tale of Resilience
Velesto’s Q1 2025 performance paints a nuanced picture. Despite a notable reduction in revenue, the company successfully improved its profit margins, leading to a stronger bottom line. This indicates effective cost management and operational efficiency amidst challenging market conditions.
Revenue Performance: A Closer Look
The Group’s revenue for Q1 2025 stood at RM224.6 million, a significant decrease compared to RM338.6 million in the corresponding quarter of last year. This 33.65% reduction was primarily driven by lower rig utilization in the drilling segment and the completion of the i-RDC project in October 2024. However, it’s not all about the top line; let’s see how this translated to profitability.
Profitability Soars Amidst Revenue Challenges
Despite the revenue decline, Velesto managed to achieve a higher Profit Before Tax (PBT) and Net Profit. This is a testament to their efforts in controlling costs and optimizing operations.
Q1 2025
Profit Before Tax: RM65.3 million
Net Profit: RM52.6 million
Earnings Per Share: 0.64 sen
Q1 2024
Profit Before Tax: RM60.2 million
Net Profit: RM46.8 million
Earnings Per Share: 0.57 sen
The PBT increased by 8.53%, from RM60.2 million in Q1 2024 to RM65.3 million in Q1 2025. Similarly, Net Profit saw an impressive 12.38% jump to RM52.6 million. This positive shift was mainly attributed to lower finance costs and depreciation, which helped offset the impact of lower rig utilization.
Segmental Contributions: Drilling Leads, Others Improve
The Drilling Segment remains the primary revenue driver, contributing RM221.1 million, though this was lower than the RM335.6 million in the corresponding quarter last year. The decline was due to a decrease in jack-up rig utilization, which fell to 67% from 94%. However, higher average daily charter rates (USD127k/day versus USD107k/day) partially mitigated this impact. Despite the lower revenue, the Drilling Segment’s PBT increased to RM65.0 million, up from RM60.4 million, benefiting from reduced finance costs and depreciation.
The Others Segment, primarily from operations in Tianjin, showed positive momentum, recording higher revenue of RM3.5 million (compared to RM3.0 million) and swinging from a loss to a profit before tax of RM0.3 million.
Financial Health: Strengthening the Balance Sheet
Velesto’s financial position as of 31 March 2025 shows a strengthening balance sheet. Total assets saw a slight reduction to RM3.03 billion, mainly due to lower foreign exchange revaluation of property, plant, and equipment. Encouragingly, total equity increased by RM37.6 million to RM2.61 billion, driven by the profit after tax and movements in foreign currency translation reserve. Total liabilities decreased by RM80.3 million to RM419.9 million, primarily due to lower trade and other payables and a reduction in borrowings. This reduction in liabilities improves the company’s financial flexibility.
Cash Flow: Steady Operations
The company continued to generate healthy cash from its operations, with net cash generated from operating activities at RM83.6 million for Q1 2025. This strong operational cash flow is crucial for supporting ongoing investments and managing debt obligations.
Risk and Prospect Analysis: Navigating the Future
The oil and gas industry is inherently cyclical and exposed to volatile commodity prices. Velesto acknowledges these challenges and is strategically positioning itself for sustainable growth.
Market Dynamics and Operational Outlook
While Brent crude oil prices are currently trading in the low USD60s, the Rystad consensus projects an average of USD69 per barrel, indicating a moderate outlook for the global oil and gas industry. The volatility is influenced by factors like OPEC+ output adjustments, global economic uncertainties from trade tensions, and geopolitical developments. Despite these external pressures, Velesto maintains a “cautiously optimistic” outlook for 2025.
On the operational front, Velesto’s jack-up rig marketed utilization remains robust at 93% regionally and 91% globally. Crucially, NAGA 2, NAGA 4, and NAGA 6 are contracted until the first quarter of 2026, providing a solid foundation for future earnings. NAGA 8 is undergoing its 5-year Special Periodical Survey and is expected to commence work in Indonesia from July 2025 until February 2026. However, NAGA 3 remains idle, which could be a drag on overall utilization if not secured for future work.
Strategic Focus and Order Book
Velesto’s primary focus is to maximize shareholder returns by preserving margins through securing long-term earnings and implementing increased discipline in cost optimization initiatives. The company’s order book stands strong at RM1.39 billion as of April 2025, which is expected to support the Group’s financial performance well into 2028. This substantial order book provides good visibility and stability for their future revenue streams.
Proposed Capital Reduction
An interesting development is the proposed capital reduction exercise, involving the reduction and cancellation of RM1.2 billion of its issued share capital. This move, subject to shareholder and High Court approvals, is expected to be completed in Q3 2025. The resulting credit will be transferred to retained profits or used to offset accumulated losses, potentially enhancing the company’s financial structure and future dividend capacity.
Summary and
Velesto Energy Berhad’s Q1 2025 report demonstrates a commendable ability to enhance profitability despite a significant drop in revenue. The company’s strategic focus on cost optimization, combined with a healthy order book extending to 2028, provides a degree of stability in a volatile industry. While rig utilization remains a key area to watch, especially with NAGA 3 being idle, the overall financial health appears to be improving, supported by a strong balance sheet and consistent operating cash flows.
However, it’s crucial for investors to consider the broader market context and inherent risks associated with the oil and gas sector.
Key risk points to monitor include:
- Continued volatility in global oil and natural gas prices, which directly impacts demand for drilling services.
- The cyclical nature of the offshore drilling and oilfield services industries, which can lead to fluctuations in rig utilization and day rates.
- Geopolitical tensions and global economic uncertainties that could dampen energy demand and investment.
- The challenge of securing new contracts for idle rigs like NAGA 3 to maintain optimal fleet utilization.
Please remember, this analysis is for informational purposes only and does not constitute investment advice. Always conduct your own due diligence before making any investment decisions.
What are your thoughts on Velesto’s latest performance? Do you think the company can maintain this growth momentum in profitability despite the revenue challenges and market headwinds? Share your views in the comments below!
