Equity Analysis /
Vietnam

PetroViet Nam Technical Services: Q2 19 – Mechanics and engineering segment drive growth

    Vu Tran
    Vu Tran

    Oil & Gas, Fertilizers

    Rong Viet
    11 July 2019
    Published by

    Despite lower earnings in Q2 19, we remain positive on PVS and still believe that the company will benefit the most from major oil & gas projects in the next few years. We reiterate Accumulate for PVS with a target price of VND28,000, Including the VND700/share, we arrive at a total return of 19%, based on the closing price on 11 July).

    PVS released the 6M 19 preliminary results with revenues of VND8,900bn (+16.1% yoy) and VND650bn PBT (+18.6% yoy). Revenue and PBT in Q2 19 was VND4,965bn and VND169bn, respectively.

    Mechanics and construction (M&C) segment: Growth engine

    In the segment, Sao Vang-Dai Nguyet contributed the most. However, the Q2 19 gross profit margins may be lower than Q1 19 due to the low margins of the Gallaf project. We project PVS to record VND10,400bn in this segment this year, with gross margins of 7.6%.

    Regarding new projects, PVS has won the LNG Thi Vai Terminal contract worth US$100mn. The company is also bidding for other projects such as Salman, Nam Con Son 2 Phase 2 and Nam Du-U Minh. Currently, PVS is conducting the FEED for the Nam Du-U Minh project, which will likely make PVS the main EPC contractor going forward.

    Improvement in 2019 earnings

    Thanks to the significant growth in the M&C segment, we forecast that PVS will post VND17,258bn in revenue, up by 17.9%. In addition, the JV dissolution with CGGV will lift the gross margin to 8.9% from 7.6%, pushing the gross profit to increase by 36.7% to VND1,530bn. In terms of net profit after tax (minus the minority), PVS can achieve VND1,152bn, up 10%, equivalent to an EPS of VND2,391.

    We reiterate Accumulate for PVS with a target price of VND28,000, Including the VND700/share, we arrive at a total return of 19%, based on the closing price on 11 July).