Velesto’s share price fell as low as 18 sen but ended the day at 19 sen, valuing the company at RM1.56 billion from RM2.26 billion just a day earlier.
It was the most actively traded counter on Bursa Malaysia today with 581 million shares changing hands.
The stock had been on an uptrend since the start of the year, and its share price hit a year-high of 27.5 sen yesterday.
In a Bursa Malaysia filing yesterday, Velesto announced it suffered a net loss of RM26 million for the fourth quarter (Q4) from a net profit of RM5.43 million a year ago, as the bottom line was hit by higher operating expenses, finance costs and taxation.
For the full year, its net loss widened to RM100.4 million from a net loss of RM90.82 million in FY2021.
Its revenue grew to RM243.07 million in Q4 FY2022, 53% higher than the RM158.48 million reported in Q4 FY2021, driven by higher utilisation of the group’s jack-up drilling rigs.
However, Q4 operating expenses at RM244.35 million surpassed revenue of RM243.07 million, resulting in a RM1.11 million loss from operations. Its finance costs increased to RM10.4 million from RM8.52 million in the quarter, as well as taxation of RM15.21 million versus a RM696,000 over-provision of tax previously.
Velesto said the positive outlook in the global oil and gas industry augurs well for its financial performance in FY2023, which is expected to be better than that of the preceding year.
New name but old problems persist
Formerly known as UMW Oil & Gas Corporation Bhd, Velesto is an upstream oil and gas company. Its main offerings are offshore drilling, hydraulic worker, threading, repair, and inspection services.
The company decided to change its name in 2018 following its demerger from UMW Holdings Bhd in 2017. Permodalan Nasional Bhd (PNB) is now the biggest shareholder in the company with a 54% stake.
A market observer remarked that “this is not the first time PNB suffered losses after foraying into oil and gas”, citing its 40% stake in Sapura Energy.
“Both companies are now essentially penny stocks,” he added. Sapura Energy’s share price closed at 4.5 sen today, giving it a market cap of RM647 million.
Pressure from downgrades
Hong Leong Investment Bank (HLIB) has downgraded its rating on Velesto to ‘sell’ from ‘buy’, cutting its target price to 21 sen from 29 sen.
HLIB Analyst Jeremie Yap said although Velesto is likely to turn profitable in 2023 and 2024 due to rising drilling rig demand, concerns remain over cost increases on oil and gas services and equipment.
“We think Velesto’s valuations are rich and have gone past its fundamentals, despite strong turnaround prospects and growth trajectory,” he said.
“A substantially stronger showing in FY2023 can be expected as we expect to see a pick-up in drilling rig tenders this year amid the current elevated crude oil price environment, leading to increased activity in the sector,” he added.
Maybank Investment Bank followed suit as they cut Velesto’s rating to ‘sell’ from ‘hold’.
The bank said Velesto needs to pivot away from jack up rigs this upcycle. “The group must rebrand itself beyond the current chase for higher profits,” it added.