VELESTO: Strong Quarterly Performance Driven by Higher Utilization, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.26 (+8.3%) |
| Last Traded | RM0.24 |
| Recommendation |
A leading oil and gas services firm has reported its 9MFY25 financial results within expectations, with a notable surge in third-quarter profitability driven by enhanced operational efficiencies and higher asset utilisation. The performance aligns closely with both the investment bank’s and consensus full-year forecasts, underpinning a positive outlook for the company.
Performance Review
On a quarter-on-quarter basis, the company saw a robust 20.1% increase in revenue for 3QFY25. This significant growth was primarily attributed to a substantial improvement in jack-up rig utilisation, which climbed to 81% from 57% in the preceding quarter, alongside a consistent operating efficiency of 99% in its drilling services segment. Despite a softer average daily charter rate (DCR) of USD111,000 compared to USD123,000 in 2QFY25, profit before tax (PBT) still recorded an 8.2% rise.
Year-on-year, while revenue declined by 31.9% due to a lower average DCR (USD111,000 vs USD127,000 in 3QFY24) and the completion of a major i-RDC project in 3QFY24, PBT remarkably increased by 36.1%. This was supported by elevated jack-up utilisation (81% vs 69% in 3QFY24), sustained operating efficiency, and reduced finance costs and depreciation. Furthermore, the year-on-year comparison benefited from accelerated depreciation and reorganisation provisions recorded in 3QFY24.
Future Outlook and Order Book
Looking ahead, market insights suggest a softening of jack-up rig demand in Southeast Asia during 2025 before a projected recovery in 2026. Day charter rates are also expected to moderate due to an oversupply environment, though the anticipated pullback is deemed milder than the severe downturn witnessed in 2016-2017 when oil prices slipped below USD50/bbl.
Despite these market dynamics, the company boasts strong earnings visibility, underscored by an outstanding order book of RM1.1 billion. Of this, 91% represents firm contracts, providing a solid foundation. The group has also identified a pipeline of prospective contracts worth RM3.2 billion, with over 70% of this value tied to long-term arrangements. These opportunities are predominantly located in Malaysia (83%), with additional presence in Vietnam (12%) and Indonesia (5%), and are largely drilling-related (80%), reflecting core competencies in jack-up rig services.
Investment Bank’s Reaffirmation
TA SECURITIES has rolled forward its valuation to Calendar Year 2026, reiterating its “BUY” recommendation for the stock. The target price has been revised upwards to RM0.26 per share, from a previous RM0.25, based on a 9x CY26 EPS multiple and a 3% ESG Premium. This new target price implies an 8.3% upside from the last traded price of RM0.24.
