Velesto fired up for its share price to surpass the year-high 32 sen

Velesto Energy Bhd share price has jumped 27% in the past year to close at 28 sen on July 3. Good news is that there is still room to grow and investors may want to buy on weakness.

This is mainly in anticipation of strong earnings in the coming quarters amid persistent jack-up (JU) rig crunch in the region. The counter has touched its 52-week high of 32 sen in April this year after plunging to a low of 20 sen in Dec last year.

Velesto is already trading near its long-term support region of 25 sen to 27 sen with indicators showing uptick bias. One of the main catalysts as mentioned earlier was the supply crunch of JU rig.

For 2QFY24, Velesto’s JU rig utilisation is expect to above 90%, with full-year utiliz\sation projected at 85%, versus FY23's 83%. In addition, the renewal of the umbrella contract with Petronas Carigali, featuring a higher daily charter rate of some US$140,000, up from US$100,000), will contribute positively to Velesto’s earnings from 2Q24 onwards. It is projected that Velesto’s earnings are to surge 89% in FY24, with an additional 9.6% increase in FY25.

What could mar the good run is the suspension of over 20 JU rigs’ contracts by Saudi Aramco with multiple drilling contractors. Essentially, this may lead to higher supply in the Southeast Asia region as contractors seek to redeploy rigs to other markets.

In the near term, Velesto’s earnings will robust upstream capex pipeline by oil majors in the region to support demand for drilling rigs, Also, Velesto has locked in contracts for most of its rigs for 2024 and 2025.

Currently, 4 out of 6 Velesto’s JU rigs are under long-term charters with secured rates until end-2025, while charters for Naga 3 and 5 in FY25 are currently under bidding and negotiation.

The favourable macro climate is also helping to boost Velesto’s prospects. At the moment, rig owners are more than happy to keep supply low and enjoy the high daily charter rates. Investors may wanto be part of the growth story at Velesto.