KUALA LUMPUR: Velesto Energy Bhd's financial year ended Dec 31, 2023 (FY23) results beat expectations due to higher rig utilisation rate and slower cost increase, according to Kenanga Research.
The firm noted that Velesto's FY23 core net profit of RM100.3 million beat its forecast and the consensus estimate by more than 100 per cent and 69 per cent respectively.
"The variance against our forecast came largely from higher-than-expected rig fleet utilisation rate and contained operating costs," it said in a note.
Velesto's FY23 top line more than doubled due to an improvement in rig utilisation rate from 62 per cent to 83 per cent and an increase in the average daily charter rate (DCR) from US$77,000 to US$94,000.
This more than covered higher operating, depreciation and finance costs, resulting in a turnaround.
Kenanga Research said all six of Velesto's rigs are currently in use, but five are scheduled to conclude their current charters in the first half of financial year 2024 (1HFY24).
"This scenario presents an opportunity for the company to secure new charters, potentially at higher DCR, considering the strong market demand for jack-up rigs.
"Also helping, is stabilising labour cost," it noted.
As such, Kenanga Research upgraded its call for Velesto to "Outperform" from "Market Perform" previously, while raising its target price by 20 per cent to 31 sen.
Kenanga Research also raised its FY24 net profit forecast by four per cent after adjusting for slightly lower growth rate in operating costs.
The firm maintained its FY24 forecast average DCR and utilisation assumptions of US$119,000 and 84 per cent respectively.
Its FY25 forecasts assume an average DCR of US$122,500 and utilisation of 87 per cent.
"We like Velesto due to the positive outlook of the local jack-up rig market buoyed by strong demand amidst firm crude oil prices, its strengthened bargaining power as a result, paving the way for better DCR on contract renewals, and potential upside surprises to its margins on early signs of easing in labour cost inflation," it added.
Kenanga Research said risks to its call include a sharp plunge in crude oil prices, lower-than-expected DCR on rig contract renewals, as well as longer-than-expected maintenance duration for rigs.