VELESTO Energy Bhd’s (VELESTO) first half of financial year 2026 (1HFY26) earnings fell short of expectations, weighed by weaker rig utilisation, although improving contract coverage points to a recovery ahead.
1HFY26 core net profit of RM27.2 mil came in below both TA Securities (TA) and consensus expectations, accounting for only 19% of their forecast and 20% of consensus full-year estimates.
The earnings shortfall was mainly attributable to weaker-than-expected rig utilisation, as several rigs were between contracts during the quarter.
A second interim dividend of 0.25sen/share was declared, bringing 1HFY26 dividends to 1.0sen/share, from 0.75sen/share in 1HFY25.
Naga 3 could provide a near-term boost for Velesto, with the company in advanced discussions over a potential deployment towards the end of FY2026. Although no contract has been secured yet, management remains positive about the prospects given the progress of negotiations.
As Naga 3 is a non-premium jack-up rig, its day rate is expected to be broadly comparable with that of Naga 2.
At the same time, Velesto is continuing efforts to find a buyer for Naga 3, with a new deployment offering the company an avenue to generate value from the asset while the sale process remains ongoing.
“We expect VELESTO’s rig utilisation to recover in 2HFY26, with 5 out of 6 owned rigs fully contracted during 3Q–4QFY26F, some of which have contracts extending into the financial year 2027,” said TA.
Looking ahead, Naga 4 and Naga 5 are already under negotiation for potential financial year 2027 deployment, while VELESTO continues to bid for follow-on work for Naga 6 and Naga 3.
The regional jack-up market outlook remains positive, although elevated rig availability is likely to cap near-term upside in DCR.
Demand should remain supported by increasing upstream activity and heightened energy-security priorities, particularly for the 2027–28 campaign.
However, additional rig supply is expected as existing contracts expire, keeping competition elevated.
“We therefore expect a more meaningful DCR recovery potentially emerging from 2H27 onwards as excess capacity is gradually absorbed,” said TA.
Despite the near-term earnings weakness, TA believes the anticipated recovery in rig utilisation provides sufficient support for our medium-term earnings outlook. That said, TA maintains Buy for VELESTO.—Aug 24, 2026
Main image: offshore-mag.com
