KUALA LUMPUR (Jan 22): Velesto Energy Bhd (KL:VELESTO) is expected to allocate nearly all of the recent US$63 million from its Naga 3 jack-up rig sale as a special dividend payout of up to three sen per share, said CGS International.

This expectation is supported by the company's strong financial position, which includes cash holdings of RM169 million and net current assets of RM263 million as of Sept 30, 2025. 

The dividend announcement is likely to accompany the release of Velesto's first-quarter financial year 2026 (1QFY2026) results in May 2026, added the house.

"It (Velesto) also has no asset acquisition plans, no special period survey (SPS) scheduled for FY2026-FY2027F (forecast) with only one SPS scheduled for FY2028F, and it has already fully repaid its rig-linked project debt by October 2024. 

"In short, Velesto has no need for the US$63m cash proceeds and will likely focus on rewarding shareholders via dividends, we believe," said CGS in a note on Thursday.

The Naga-3 rig, which has been undeployed since November 2024, will be sold to Indonesia-based PT Indonesia Drilling Energy by March or April this year.

Velesto disclosed that TEXCAL Energy, through its Malaysian subsidiary, may deploy the asset in local waters or at its upstream blocks in Indonesia.

Beyond the disposal, Velesto is in advanced talks to secure long-term contracts for three of its five rigs — Naga 2, Naga 6 and Naga 8. Channel checks suggest utilisation could rise to 85% in FY2026, compared with 72% in FY2025.

The Naga 2, for instance, is expected to clinch a five-year contract with PETRONAS Carigali from May 2026, albeit at a lower daily charter rate of US$85,000.

Velesto is also pursuing asset-light growth initiatives, including a back-to-back charter of a third-party rig, codenamed Naga X, to Petronas Indonesia.

CGS estimates that the arrangement could contribute nearly five sen per share to Velesto’s discounted cash flow valuation.

CGS has reiterated its “add” call on Velesto, raising its target price to 31.5 sen from 27.5 sen previously. 

Velesto’s shares closed at 29 sen on Wednesday (Jan 21), with consensus ratings showing five "buys" and three "hold" calls.