Shares of Malaysia’s Velesto Energy Bhd. slumped Tuesday after analysts downgraded the company following a fourth-quarter loss.
Velesto Energy shares fell by as much as 32% to 0.19 ringgit, on track for their biggest one-day percentage loss in almost two years.
The offshore-drilling-services provider said late Monday that it swung to net loss of MYR26.0 million ($5.8 million) in the final quarter of 2022, compared with net profit of MYR5.4 million a year earlier, mainly due to higher expenses and taxes. Velesto posted a loss despite revenue jumping 53% to MYR243.1 million.
Hong Leong Investment Bank downgraded its rating on the stock to sell from buy, and cut its target price to MYR0.21 from MYR0.29. The bank said “valuations are rich and has gone past its fundamentals despite its strong turnaround prospects and growth trajectory.”
Although Velesto is likely to turn profitable in 2023 and 2024 due to rising drilling-rig demand, Hong Leong analyst Jeremie Yap is concerned about cost increases on oil-and-gas services and equipment, driven by rising oil-and-gas demand and global supply-chain disruptions, which could affect the availability of oil-field equipment and parts.
Meanwhile, Maybank Investment Bank cut Velesto’s rating to sell from hold, as it thinks a better operating outlook for 2023, as well as higher utilization and daily charter rates estimates, have already been priced in.
“To re-rate, [Velesto] needs to monetize its jack-up rigs, pivot away from jack-up rigs in this upcycle and re-brand itself beyond the current chase for higher profits”, Maybank analyst Liaw Thong Jung said in a note.