| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An investment bank has highlighted a significant strategic move by a leading oil and gas service provider, noting its proposed divestment of a non-core subsidiary. This action is seen as a pivotal step towards operational streamlining and an enhanced focus on core drilling activities, leading to a positive re-evaluation of its investment potential.
Strategic Divestment Detailed
The company recently announced plans to divest its wholly-owned subsidiary, Velesto Workover Sdn Bhd (VWSB), for a cash consideration of RM16.5 million. The transaction, expected to conclude in the first half of fiscal year 2026, involves the sale of a business unit primarily engaged in workover services for the oil and gas industry.
The rationale behind this disposal is rooted in VWSB’s track record as a loss-making entity, having recorded a net loss of RM7.1 million in FY24, with a net asset value of RM17.8 million. Management views the divestment as strategically sound, aiming to eliminate an earnings drag and reallocate resources towards higher-return opportunities within the core drilling segment. The proceeds from the sale are primarily earmarked for bolstering working capital, with a smaller portion allocated to transaction-related expenses.
Financial Implications and Outlook
While the disposal value is modest, it aligns closely with VWSB’s net asset value, indicating no material value leakage. The transaction is projected to yield a pro forma gain of approximately RM0.4 million after accounting for transaction costs and taxes. Analysts view this as a beneficial “clean-up exercise” that, despite its financially immaterial nature, significantly improves operational focus and strategic alignment, laying a stronger foundation for future profitability. The deal structure also mitigates downside risk through staged payments and forfeitable deposits.
Investment Recommendation
Reflecting the positive strategic implications of this divestment, TA SECURITIES has issued a recommendation for the company’s shares. The firm has set a Target Price of RM0.25, representing a substantial 25.0% upside from the last traded price of RM0.20. This positive outlook underscores confidence in the company’s refreshed strategic direction and its potential for enhanced shareholder value.
