Velesto’s 2Q in line with expectations, analysts positive on outlook

KUCHING: Velesto Energy Bhd’s (Velesto) second quarter of 2018 (2Q18) results were within expectations and analysts believe that “the best has yet to come” for the company as its recent contract wins generate earnings.

According to the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital), Velesto, formerly UMW Oil and Gas (UMWOG), 2Q18 revenue came in at RM112 million which it said was in line with its forecasts, in anticipation of a stronger second half of 2018 (2H18).

It also noted that Velesto’s 2Q losses narrowed 59 per cent yearon-year (y-o-y).

“Our view of a stronger 2H18 earnings remains intact as five out of the total seven jack-up rigs are currently working and two more rigs expected to be mobilised before August 2018, most with visibility until the end of FY18.

“The higher utilisation rates, coupled with lower depreciation and interest cost savings post restructuring, are expected to push Velesto towards an earnings turnaround in FY18,” it observed.

Although there was one additional rig working during the quarter (six units compared to five units in 2Q17), AffinHwang Capital pointed out that overall utilisation rate was actually lower at 59 per cent (compared with 68 per cent) as only two rigs contributed to a full quarter, while the remaining four units did not contribute to the full quarter.

It also noted that its 2Q18 earnings before interest, tax, depreciation and amortisation margin rose 6.7 percentage points y-o-y to 38 per cent due to lower operating costs. All in, AffinHwang Capital maintained a ‘buy’ rating on the stock.