20250527 Velesto Energy Berhad

 Velesto delivered yet another beat in 1Q25. Post earnings call and disclosures of its updated rig schedule, we adjust our FY25-27E net profit forecasts by +5%/-5%/-9% to account for: i) lower realised DCR forecasts of USD120k/102k/100k (from USD122k/112k/110k); and ii) lower utilisation rate assumptions of 71%/72%/76% (from 74%/81%/81%). Our TP is maintained at MYR0.19 after rolling forward our base valuation year to FY26E – pegged to an unchanged PER of 10x, inline with other rated OGSE peers. Maintain BUY. 

Velesto’s 1Q25 core net profit of MYR52.6m (-5% QoQ, +12% YoY) came in above expectations at 34%/43% of ours/consensus full-year estimates. While our 1Q25 operational assumptions were close to reported operational figures (DCR: USD127k, UR: 67%), key variance against our estimates was mainly due to higher-than-expected net margins (+9.6 ppts YoY) due to: i) lower-than-expected depreciation; and ii) Velesto’s cost optimisation initiatives which are bearing fruits. We note that this is Velesto’s 4th consecutive quarterly earnings beat in a row (against our estimates). 

Velesto’s tenderbook as at April 2025 stands at MYR2.8b, of which 21% of this (~MYR588m) are tenders non-drilling related but services related to Velesto's core capabilities - possibly anchoring. This avenue could position Velesto as a OGSE player in SEA. Our revised forecasts have not baked in any of these prospects and this could create a new growth avenue for Velesto.  

As at end-March 2025, due to strong drilling OCFs, Velesto’s net cash position grew by 60% to MYR104.7m (from MYR65.4m as at end-December 2024) which represents about 8% of Velesto’s current market cap. With healthier balance sheet, we are expecting a DPR of at least 70%, which implies a payout of MYR115.2m (or 1.4 sen) and a yield of 8.5% for FY25E.






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