Velesto eyes earnings recovery in second half

PETALING JAYA: Velesto Energy Bhd is pursuing new third-party rig opportunities and accelerating cost-optimisation efforts to defend margins, as it seeks to strengthen earnings amid subdued day rates.

BIMB Research said the group is actively pursuing work for the Naga 3 vessel, while exploring disposal options for the asset.

The research house expects Velesto’s earnings to rebound in the second half of 2026 (2H26), supported by its RM1.3bil order book and RM3.7bil tender book, although day rates are expected to remain subdued throughout the year.

Velesto posted a weak second quarter, with profit after tax (PAT) of just RM500,000, dragged by lower daily charter rates (DCR) and utilisation.

The 1H26 core earnings of RM22mil, down 71% year-on-year, were in line with BIMB Research’s expectations, accounting for 26% of its full-year forecast, compared with 14% for consensus’ estimates.

“Average DCR declined to US$103,000 per day from US$123,000 a year earlier while utilisation fell to 56%, including Naga 3, from 75% in 1Q26, as several rigs underwent contract transitions and idle periods.

“After adjusting for a one-off reversal of a prior-year Naga 7 provision of about RM6.3mil, Velesto posted a core loss of RM5.8mil,” BIMB Research said in a report.

Despite the weaker earnings, Velesto declared a second interim dividend of 0.25 sen per share, bringing its total dividend for 1H26 to one sen per share, implying a payout ratio of more than 100%.

The research firm maintained a “hold” call on Velesto, while other research houses remained more positive on the stock. It kept the target price at 24 sen, saying a stronger re-rating would require a meaningful recovery in day rates or a larger contribution from the group’s third-party rig charter business.

With near-term earnings still constrained by lower day rates, it advised investors to revisit the stock at lower levels.

An analyst said Velesto’s stronger balance sheet and improved dividend visibility following the completion of its capital reduction exercise should continue to underpin its attractive financial year 2027 (FY27) dividend yield.

Meanwhile, Kenanga Research – which maintained an “outperform” call on the stock – said the group’s dividend yield of about 8% for FY26 remained achievable despite near-term headwinds.

This is because the company intends to base dividend payments closer to its operating cash flow rather than PAT levels.

“We cut the FY26/FY27 earnings by 44%/27% to account for lower rig utilisation, from 79%/84% to 67%/80%, to take a more cautious view of the rig activity recovery over the next two years.

“We have also cut our FY26 dividend per share assumption to two sen per share from 2.8 sen, as a result.

“The dividend to be paid still amounts to RM167mil, which is lower than the RM266mil forecast operating cash flow.”