Velesto Rigs in High Demand, FY25 Outlook Strengthens on Rising Utilisation
Strong Demand Secures Utilisation Visibility Through FY25
Velesto Energy Berhad is experiencing robust demand for its jack-up (JU) drilling rigs, reinforcing positive earnings momentum through the financial year ending 2025. With five out of six rigs currently contracted, the company is poised for stable revenue generation and improved operational efficiency.
This market strength has prompted Maybank Investment Bank Research to raise its FY25 net profit forecast by 3%, adjusting the average rig utilisation assumption from 71% to 72%. The revision follows the early commencement of operations for the NAGA 5 rig, which was deployed ahead of schedule.
Operational Update: High Activity Despite Maintenance Disruptions
While 2Q25 earnings are expected to show a moderate dip, this is largely attributed to scheduled maintenance downtime. Specifically, the NAGA 3 and NAGA 8 rigs underwent Special Periodical Surveys, reducing overall utilisation in the quarter to 56%. Additionally, average daily charter rates declined to USD123,000 from USD127,000 in 1Q25.
However, Velesto’s performance is expected to rebound sharply in the second half of 2025. Utilisation is projected to reach 83% in both the third and fourth quarters, reflecting new contracts coming into effect and the return of rigs from maintenance.
Key Contract Wins Cement Earnings Pipeline
Velesto has secured notable contracts to support its forward earnings profile, including:
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A 15-well drilling campaign for NAGA 5, awarded by PTTEP HK Offshore Ltd and PTTEP Sarawak Oil Ltd. Drilling began in June 2025 and is expected to continue well into FY26.
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A four-year contract for NAGA 8 in Indonesia, commencing in July 2025 following the completion of scheduled maintenance.
These contracts not only improve fleet visibility but also reflect the company’s growing regional competitiveness in offshore drilling services.
Natural Hedge Minimises Forex Risk
Despite a dip in the USD/MYR exchange rate to 4.31 in 2Q25 from 4.45 in 1Q25, Velesto’s earnings remained well-protected. Approximately 70% of its operating costs are denominated in USD, providing a natural hedge against foreign exchange volatility. This financial positioning enables Velesto to maintain stable margins despite currency fluctuations.
Strengthening Balance Sheet and Enhanced Shareholder Returns
Velesto’s financial health continues to improve, underpinned by disciplined cost control and higher rig deployment. Net cash rose sharply by 60% quarter-on-quarter, reaching MYR104.7 million as of March 2025.
This improving liquidity has allowed the company to revise its dividend strategy. Maybank has increased Velesto’s Dividend Payout Ratio from 70% to 100%, resulting in a projected dividend per share (DPS) of 2.1 sen. At current share prices, this implies a dividend yield exceeding 11%, making it an attractive value proposition for income-focused investors.
Outlook: Positioned for Sustained Growth in FY25
| Category | Highlights |
|---|---|
| Rig Utilisation | 5 of 6 rigs contracted; 72% utilisation projected for FY25 |
| New Contracts | NAGA 5 begins 15-well campaign; NAGA 8 secures 4-year contract in Indonesia |
| 2Q25 Performance Dip | Due to scheduled maintenance and lower charter rates; recovery expected in 2H25 |
| Forex Resilience | 70% USD cost structure offsets exchange rate impact |
| Financial Strength | Net cash up 60% QoQ; MYR104.7 million as of March 2025 |
| Dividend Upside | DPS raised to 2.1 sen; payout ratio lifted to 100%, yield >11% |
Velesto Energy’s ability to secure high rig utilisation levels, win long-term contracts, and maintain financial discipline positions it well for continued success in FY25. With a rebound expected in the second half of the year and a generous dividend policy now in place, Velesto offers both operational strength and compelling shareholder returns. The company is on a solid trajectory for growth, underpinned by strong industry demand, a competitive rig fleet, and prudent capital management.