Equity Analysis /
Vietnam

PetroVietnam Drilling & Well Services: Q2 19 results – Positive gross profit from drilling services; Accumulate

    Vu Tran
    Vu Tran

    Oil & Gas, Fertilizers

    Rong Viet
    24 September 2019
    Published by

    PVD's gross margin improved in Q2 19 to a strong 15.2% from 3.1%, which helped triple the gross profit to VND152bn. We assign Accumulate on PVD with a target price of VND21,060 per share. 

    In Q2 19, the working days improvement of PVD II helped revenue rise to VND494bn (+5.9% qoq and +26.7% yoy), while the gross profit of the drilling segment turned positive to VND54bn from a loss of VND33bn in Q1 and a loss of VND96bn in Q2 18. In Q1 19, drilling activities were affected due to the two-month “warm stacked” mode from PVD II.

    In Q2 19, PVD recorded revenues of VND29bn from JVs and VND60bn from other associates, while the company continued to book provisions of VND25bn from PVEP.

    Overall, revenue decreased by 38% to VND1,004bn. The gross margin improved to a strong 15.2% from 3.1%, which helped triple the gross profit to VND152bn. As a result, the attributable net profit came in at VND109bn, compared with a loss of VND68bn in the same period last year.

    FY 19 outlook: Jack Up (JU) day rate on the way up

    The JU rig day rate is up, especially since June, and the 2019 average day rate for PVD is likely to increase by 10% yoy. Due to the extension of depreciation time in PVD II, III, VI (which began in 2018) and full-year jobs, we believe the drilling segment will be better than last year and may even reach breakeven point in 2020.

    In the well services segment, there will be a fall in revenue due to longer-than-expected operations in foreign markets. although profits will be posted, it should be lower than in 2018.

    For FY 19, we project revenue to come in at VND4,321bn (-21.5% yoy) and net profit of -VND24bn for the parent company. However, we are quite sure that PVD will use the Science and Technology Development Fund of cVND238bn, to keep the 2019 bottom line positive.

    Valuation and recommendation

    Long-term contracts, including potential ones in Brunei for PVD V in 2020, will secure jobs for the drilling rigs. Profitability may not be as expected, especially for PVD V, while the JU rigs are expected to reach breakeven point next year. In our opinion, we think that PVD is getting over the most difficult time and improving its results.

    Based on the PB method, we assign Accumulate on PVD with a target price of VND21,060 per share, equivalent to a total return of 16%, as of the closing price on 23 September 2019.