Thursday 28 Mar 2024
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KUALA LUMPUR (March 25): Research house CGS-CIMB has raised its target price (TP) for Velesto Energy Bhd to 17 sen from 13 sen prior as higher oil prices are expected to raise its daily charter rates (DCRs) over the next five years.

In a note today, analyst Raymond Yap said he expects Velesto's DCRs for the financial year ending Dec 31, 2021 (FY21) to FY23 to be at US$68,000 (RM281,520) before rising to US$70,000 in FY24, US$71,000 in FY25 and US$72,000 from FY26 onwards.

“We also assume utilisation of 60% in FY21, and 75% thereafter. Our new assumptions walk the middle road, and are comparable with Velesto’s metrics during the recovery years of FY17-19, with DCRs of US$68,000-US$72,000 and utilisation of 74% (FY17: 70%; FY18: 73%; FY19: 80%).

“Our TP increase is moderated by an increase in the risk-free rate assumption from 2.5% to 3.5%, taking our cue from a rise in the 10-year government bond yield from 2.6% to 3.4% over the past three months,” he explained.

However, he maintained his "hold" call on the counter as he believes that the recent share price rally had factored in the counter’s recovery.

Meanwhile, he deemed Velesto’s latest quarterly core net loss of RM8.5 million for FY20 to be narrower than his projected RM13 million, as well as the RM23 million consensus estimate, thanks to foreign exchange gains.

To recap, Velesto posted a net loss of RM493.29 million from a net profit of RM10.2 million a year earlier. Quarterly revenue shrank 44.38% to RM99.06 million from RM178.1 million mainly due to lower activities in both its drilling and oilfield services segments. For the full FY20, Velesto reported a net loss of RM491.73 million from a net profit of RM33.22 million. Annual revenue fell 18.5% to RM546.94 million from RM670.76 million a year ago.

However, the analyst expects core losses for the first quarter ending March 31, 2021 (1QFY21) to widen from 4QFY20 as jack-up rig utilisation is expected to decline to just 28%.

“Our FY21 core loss per share forecast [is] narrowed [down by] 36% as we reduce our depreciation estimates following Velesto’s impairment charge against its rig assets in 4QFY20, and [we] also reduce our administrative cost estimates based on actual FY20 levels. Our FY22 forecast [is] raised from a core loss to core net profit per share, for mainly the same reasons explained above, plus an increase in [our] utilisation assumption from 64% to 75%,” said Yap.

Velesto was the ninth-most traded stock as at 9.21am today, trading one sen or 5.71% lower at 16.5 sen, with 23.11 million shares traded, giving it a market capitalisation of RM1.38 billion.

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