Its share price is already showing a strong rebound and this should attract more investors. The counter closed at 26 sen on Jan 12, up 41.7% in the past year and inching close to its 52-week high of 28 sen seen in last February.

It is way above its low of 18 sen last January. What is attractive about the drilling and oilfield services provider for the upstream sector of the oil and gas industry?

For one, with crude oil prices expected to skyrocket due to geopolitical tensions, players such as Velesto will benefit from heightened demand. After a disappointing results in the third quarter FY23, the company is expected to record much stronger earnings growth in the coming quarters attributed to robust utilisation and charter rate of its JU (jack-up) rigs.

The RM2 billion company is expected to see a all its JU rig fleets running at full steam in 4QFY23. Previously, in 3QFY23, Velesto saw a massive 93% drop quarter-on-quarter and 92% year-on-year in earnings, to a mere RM1.2 million.

It blamed the underwhelming results to the reduction in JU rigs utilisation, falling from 88% to 60% QoQ, due to respective maintenance and subsea petrol services (SPS) works in four of its fleets.

News that Velesto is currently working to secure contracts from 2024-2026, mainly targeting longer term contracts, which will help boost its financial growth.

According to management, the operational performance is good in Oct and Nov 2023. The group expects the jack-up drilling rig’s utilisation rate to improve to above 90% in 4QFY23 (3QFY23: 62% due to various scheduled maintenance activities).

Overall, analysts are expecting an exceptional performance in 4QFY23 on the back of higher rig utilisation rate.

Another boost for Velesto is the higher daily charter rates (DCR) negotiated with Petronas, translating to a steep rebound in Velesto’s earnings going forward. It is also an added booster to an anticipated favourable JU rigs outlook.

Global drilling market is currently undergoing an upward cycle due to drilling rigs crunch, leading to robust utilisation rate and strong bargaining power for rig owners in pricing DCRs.

The global rig market is nearing full utilisation with more than 90% while contracted rigs have been rising in recent quarters while supply has decreased due to rising demand for drilling activities.

The JU rigs crunch is even more severe in the Southeast Asian region where all available rigs have been fully utilised as at Nov-23 with DCR as high as USD145-165k, an increase of 40-60% YoY.

As umbrella contract with Petronas is due for renewal in 1Q24, with higher utilisation rate and Naga 2, 4 and 5 will be occupied in 2H24 while locking in a higher DCR ranging from USD120-135k/day.

Naturally, investors can also witness the potential in Velesto’s business and will be hoping the counter touch a new high.

Here are the setup based on Daily Chart:

1. Reaccumulation stage

2. Forming VCP Pattern