KUALA LUMPUR: Velesto Energy Bhd's earnings for financial year 2025 (FY25) is expected to be affected by Petronas' lower exploration activities in Sarawak.
Kenanga Research cut the company's FY25 earnings by 13 per cent after accounting for a more conservative rig utilisation assumption to 84 per cent from 87 per cent.
It also lowered Velesto's target price to 30 sen from 34 sen previously but maintained an "Outperform" recommendation.
Kenenga Research said the revision is after taking account the lower exploration activities expected from Petronas in Sarawak, which opens up some of its rigs for shorter term charters from regional clients.
Based on channel checks, Kenanga Research said exploration activities historically accounted for 30 per cent of total drilling activities.
"The recent concern about Petros taking over from Petronas as the gas aggregator in Sarawak may affect exploration drilling in Sarawak.
"However, we believe that overall rig demand will remain stable year-over-year in FY25 at worst, supported by demand from Indonesia, Vietnam, and possibly other operators in Sarawak," it said today.
On Velesto's earnings in the first half of financial year 2024 (1HFY24), Kenanga Research said it was in line with its expectation although the revenue surged by 29 per cent while the core profit nearly tripled.
The core profit of RM109 million was deemed within the firm's expectation at 75 per cent but came in below consensus at 67 per cent.
The firm anticipated weaker earnings in 2HFY24 as three rigs were scheduled for maintenance, which will result in lower rig utilisations.
According to Kenanga Research, all six of the company's rigs were currently in use, but Naga 3 had gone into special period survey (SPS) for 3QFY24, followed by Naga 5 and 6, which started in the middle of 3QFY24.
"Moving into FY25, four of its six rigs will be available for work throughout the year, except for Naga 3 and 8, which will undergo SPS in 1QFY25 and mid-4QFY25," the firm added.