KUALA LUMPUR: The favourable development of the revised charter rates and contracts secured will likely lead to a strong 2023 earnings turnaround for Velesto Energy Bhd.
Affin Hwang Capital said Velesto has successfully negotiated higher charter rates for the remaining tenure of the Petroliam Nasional Bhd's (Petronas) umbrella contract, which should help cushion an expected opex cost increase.
While Velesto said that operating costs would be 10–15 per cent higher than expected in 2023 arising from materials to corporate costs, Affin Hwang said the increment could be offset by the higher charter rates that Velesto has successfully negotiated with Petronas.
"These will be progressively reflected from the second quarter (Q2) of 2023 onwards.
"Thus, we raise our 2023 earnings per share (EPS) by 10 per cent but lower the 2024–25 EPS by seven per cent," it said.
Meanwhile, Affin Hwang said that based on current firm contracts, the first quarter (Q1) 2023 rig utilisation averages around 86 per cent before falling slightly to 81 per cent in Q2 2023.
The research house said Q3 2023 utilisation would still be relatively low at 53 per cent, with a few work programmes under negotiation with Petronas.
"Barring any unforeseen operational hiccups and clients' drilling programme delay, Q4 2023 will likely record 100 per cent utilisation.
"Velesto has secured 80 per cent utilisation so far for 2023, already above the 62 per cent recorded in 2022.
"We upgrade Velesto to a Buy with an unchanged target price of 26 sen," it added.