Introduction
Velesto Energy Berhad (VEB) stands at a pivotal point, with significant developments in its business landscape. This report delves into the intricate details of Velesto’s current position, future prospects, and the recommendations by Maybank Investment Bank Berhad’s analysts.
Velesto Energy Berhad: Growth and Challenges
Velesto Energy Berhad is a prominent player in the oil and gas sector, providing drilling and oilfield services. Despite facing potential challenges, including a possible PETRONAS capex downcycle, Velesto is strategically positioned for growth. The company’s robust regional tenderbook, valued at MYR5.4 billion, reflects a 69% increase from the previous quarter, underscoring its potential to mitigate the effects of the anticipated 2025 downcycle.
Velesto’s strategy to secure long-term (LT) tenders in Thailand and Vietnam is expected to sustain its growth trajectory over the next 12-18 months, providing a hedge against potential market downturns. Although these LT tenders may come with lower daily charter rates (DCRs), they promise enhanced utilization rates and earnings visibility through to the end of 2026.
Financial Forecasts and Dividend Potential
Velesto’s financial outlook is promising. The company is expected to generate a free cash flow (FCF) of MYR309 million in FY2025, transitioning to a net cash position of MYR202 million by the end of the year. This strong cash flow generation capability places Velesto in a favorable position to potentially increase its dividend payout ratio (DPR), offering a compelling dividend yield.
The current DPR from net profit stands at 20%, translating to a dividend payout of MYR32.6 million in FY2025, implying a yield of 2.6%. With sustained cash flow improvements, Velesto could raise its DPR, enhancing its attractiveness as a dividend-yield stock.
ESG and Sustainability Initiatives
Velesto has made significant strides in its sustainability journey, aligning with international standards and improving its environmental, social, and governance (ESG) metrics. The company has adopted six United Nations Sustainable Development Goals (UNSDGs) and set ambitious targets for emissions intensity reduction by 2022.
In FY2023, Velesto recorded zero major spills and continued to improve its environmental performance, despite consuming higher levels of diesel and electricity. The company’s efforts in waste management and water conservation are notable, with strategic use of seawater for drilling operations and meticulous waste segregation practices.
Governance and Social Responsibility
Velesto’s governance framework is robust, with a gender-diverse board comprising 56% independent directors and 44% female representation. The company is a constituent of the FTSE4Good Bursa Malaysia Index Series and has received multiple corporate governance awards.
Socially, Velesto is committed to diversity and inclusion, with a workforce comprising 25% non-Malaysian employees and a target of 30% female representation in leadership roles. The company has maintained a strong safety record, registering zero fatalities and loss-time incidents in FY2023.
Risk Factors and Recommendations
Several risks could impact Velesto’s performance, including fluctuations in crude oil prices and potential challenges in securing contracts. However, the company’s strategic initiatives and strong financial position mitigate these risks effectively.
The recommendation from Maybank Investment Bank Berhad is a “BUY” with a target price of MYR0.25, reflecting confidence in Velesto’s growth potential and resilience in the face of industry challenges.
Conclusion
Velesto Energy Berhad is poised for growth, backed by a solid strategy, strong financials, and a commitment to sustainability. The company’s focus on securing regional contracts and improving its ESG performance positions it well for the future. Investors are encouraged to consider Velesto as a promising investment, with potential for both capital appreciation and attractive dividend yields.
