KUALA LUMPUR: While simultaneously slashing earnings forecasts, Maybank Investment Bank research is seeing upsides to Velesto Energy Bhd's share price after the recent sell-off that saw it lose three-quarters of its value.
"The recent 75% fall in share price, which has priced in much of the operating negatives, has turned Velesto attractive," it said in a Wednesday note.
The research house cut its FY20-22 earnings on the counter due to lower DCRs and utilisation. It expects to be in the redover the next two years before returning to the black in FY22.
According to the research house, the capitulation and volatility in the oil price market has led to an austere cut in offshore capex, which will disrupt drilling activities.
"Drilling operators are at the mercy of the clients, for they will be pressured to re-negotiate existing contracts and to lower rates, while utilisation will likely be disrupted by delays/ cancellations," it said.
However, Velesto is also better prepared operationally and finacnially to face the current crisis as compared to the previous cycle from 2014 onwards.
Maybank IB noted that the company has re-based its drilling costs, reduced its opex and recapilised its balance sheet.
"Its FY20 net debt-to-EBITDA and net gearing level of 3.2x and 0.3x now is much lower vs its FY15-16’s 10.2x-40.7x and 0.9x-1.4x respectively. Under this condition, the risk of a cash call is remote, in our view," it said.
The research house reiterated its buy call on the stock with a target price of 20 sen.
https://www.thestar.com.my/business/business-news/2020/04/29/velesto039s-valuations-look-attractive-after-recent-decline
