KUALA LUMPUR: With a new Petronas Carigali contract in the bag, Velesto Bhd could be on course to turning profitable amid the pick-up in activity in the oil and gas space.

       Hong Leong Investment Bank (HLIB) Research said in a note that there could be an increase in drilling rig tenders this year amid the high current crude oil price, which could bring Velesto back to the black in FY22 or FY23.

       This comes on the back of the drilling and oilfield servie provider's recent announcement that it had secured a two-year umbrella contract for the provision of jack-up drilling rig services from Petronas Carigali, to commence in 1Q22.

       "Overall, we are slightly positive over this development as ground indications are leading to a pick-up in Petronas upstream capex in 2022 amidst the current high crude oil price environment," said the research house.

       HLIB also noted balance sheet improvements with net debt and net gearing decreasing to RM289mil and 0.13x as at end-December 2021.

       Meanwhile, HLIB said Velesto is not expected to use the Naga 7 insurance proceeds to acquire a new rig as it will continue to optimise its assets and improve its balance sheet.

       "We make no changes to our FY22-23F earnings estimates.

       "While blended utilisation levels in 1Q22 is expected to remain lukewarm due to the annual timeline of clients’ capex planning cycle, we expect Velesto to perform better in FY22 on a full-year basis (as compared to FY20-21)," it said, while maintaining its "buy" call and target price of 18 sen per share.