Velesto’s Naga 3 rig still up for sale

PETALING JAYA: Upstream drilling services provider Velesto Energy Bhd, which recently secured a contract for the company’s jack-up rig, Naga 3, will still be considered for sale given demand stemming from the Middle East conflict emphasising energy security.

UOB Kay Hian (UOBKH) Research said the rig remains a potential sales candidate after undergoing a complete refresh with an upgrade and maintenance exercise in the first half of financial year 2026 that enables its specifications to be competitive.

The company announced on Nov 4 that it has secured a contract for Naga 3 from PETRONAS Carigali Sdn Bhd covering one firm well and one optional well, with operations commencing this month.

It believes the company would not settle for any sale offer for the rig for less than US$63mil, as recent merger and acquisition (M&A) transaction multiples imply rig values of US$58mil, a 5% increase since the Middle East conflict began in March.

“Our channel checks revealed that Naga 3 secured a short-term drilling contract to be deployed offshore Sabah,” it said.

Based on the company’s rig schedule, Naga 3 likely mobilised from Labuan in mid-October and may work until January 2027.

“We understand the rig continues to be marketed, and the priority is to bid for several potential jobs in the 2027/2028 horizon,” the research house said, noting that the company’s rig utilisation may rebound to almost 95% by the fourth quarter of financial year 2026 (4Q26) from 56% in 2Q.

It has maintained a “buy” call on the stock but with a lower target price of 27 sen from 29 sen, pegging the price to an unchanged financial year ending Dec 31, 2027 (FY27) seven times enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (Ebitda).

“This implies 19 times FY27 price-to-earnings, and a 10% dividend yield.”

It pointed out that the stock “is now trading in tandem with global jack-up rig asset-based valuation, but far cheaper versus other listed peers, which trade at multicycle highs of seven to 14 times EV/Ebitda.

“Our alternative asset-based valuation shows Velesto Energy is now trading exactly the same as a jack-up rig value in recent M&A transactions,” it said.

UOBKH Research has lowered FY26 earnings by 26%, and its FY27 and FY28 forecasts by 20% each.

“Despite the earnings downgrades, we believe Velesto Energy’s share price downtrend since the Naga 3 sale termination remains unwarranted without accounting for its execution and ability to pay dividends,” it said.

Rig utilisation has been retained at 77% for FY26, with FY27 at 82% and FY28 at 85%. Daily charter rate assumptions at US$95,000 in FY26, with FY27 at US$93,000 and FY28 at US$90,000.

UOBKH Research’s operating expenditure assumptions have turned conservative. Ebitda forecasts for FY26 to FY28, previously the highest among street forecasts, have been cut by 6% for both FY26 and FY27, and by 9% for FY28.

Dividend per share forecasts for FY27 to FY28 remain at three sen, while this has been lowered to 3.6 sen from 4.4 sen after lowering Ebitda forecast for FY26.