Velesto shares up 105% on jack-up rig demand

The firm expects to be the main beneficiary of Petronas increased drilling activity

by FARA AISYAH/ pic source: velesto.com

VELESTO Energy Bhd share price has risen 105.56% year-to-date (YTD) as the demand for jack-up drilling rigs grows faster than supply availability.

The counter closed at 37 sen yesterday, up half a sen, as its trading volume tripled the 20-day average at 81.47 million shares.

The main jack-up drilling rig player in Malaysia has gained RM1.56 billion in market capitalisation YTD and is now valued at RM3.04 billion.

BIMB Securities Sdn Bhd analyst Azim Faris Ab Rahim said Velesto is expected to be the main beneficiary of Petroliam Nasional Bhd’s (Petronas) increased drilling activity.

“There were about 10 jack-up rigs in the country last year, while demand for Petronas is expected to increase to 18 rigs in 2019. As the biggest local player, Velesto is anticipated to benefit from the demand,” he told The Malaysian Reserve (TMR).

Azim Faris stated the industry wants to see improved sustainable charter rates for the next three years. “We need to wait for the next Petronas’ Activity Outlook to see sustainable trajectory in Velesto’s share price,” he told TMR. The group owns seven jack-up drilling rigs.

For its 2Q ended June 30 this year, Velesto posted a RM11.91 million net profit against a loss of RM24.08 million for the corresponding period last year.

This was owing to the higher turn over for the quarter at RM157.05 million, up 40.4% year-on-year (YoY) largely supported by its drilling services business which benefited from higher rig utilisation and average charter rates.

For the first half of 2019 (1H19), the company remained in a net loss position of RM10.31 million despite revenue rising 21.6% YoY to RM284.08 million.

“Basically, the share price is reacting to Velesto turning around its operations and turning profitable sooner than later. Its rig utilisation rates are also up,” another analyst said.

Last month, Velesto’s wholly owned subsidiary, Velesto Drilling Sdn Bhd, received contract from Petronas Carigali Sdn Bhd for the provision of jack-up drilling rig “Naga 7”. The contract is to drill two firm wells with estimated contract value of US$8 million (RM33.46 million) and expected commencement date in 3Q19.

In April, Velesto Drilling has also bagged contracts from Petronas Carigali for its drilling programme.

The contract for Naga 2 has an estimated value of US$25.44 million, Naga 3 of US$25.44 million, Naga 5 of US$26.17 million and Naga 6 of US$27.63 million. Each contract is for a one-year period with an option of additional one plus one year extension.

Velesto’s share price has advanced 42% in the past 52 weeks, while the FTSE Bursa Malaysia KLCI lost 6.3%.

The shares are up 12% in the past five days and rose 14% in the past 30 days. The counter trades at 123 times its estimated earnings per share for the coming year.