Equity Analysis /
Vietnam

PetroViet Nam Technical Services: Strong Q1 19 results from improved revenue and gross margins

    Vu Tran
    Vu Tran

    Oil & Gas, Fertilizers

    Rong Viet
    24 May 2019
    Published by

    Mechanics and construction (M&C) segment drives revenue, while Remotely Operated Vehicles (ROV) help improve gross margins

    In 1Q 19, PVS posted VND4,905bn in revenue, up 23% yoy and driven by the M&C segment that had net sales worth VND2,663bn, up 31.3% yoy, thanks to the Sao Van Dai Nguyet project.

    Although the gross profit margin of M&C decreased 710ppts to 9%, the ROV segment only recorded a loss of VND13bn, much lower than the -VND145bn in Q1 18. This helped improve gross profit margin to 10.3% from 9.6%. The company made VND424bn in gross profit, up 31.9% yoy.

    Besides, the profit from joint ventures (JV) nearly tripled to VND179bn, doubling the company's PAT to VND385bn. However, the parent company’s profit increased by just 45.5% to VND369 bn. 

    2019 prospects: Profit (excluding JVs) to improve

    We anticipate that the business is likely to be stable in 2019, except for the M&C and ROV segment. For the M&C segment, PVS continues to recognise the rest of Sao Vang Dai Nguyet project and a part of the Gallaf project. For ROV, the 2018 provision related to the dissolution process may help to improve the overall gross margin to 8.9% from 7.6% and operating profit to VND667bn from VND373bn.

    In addition, profit from JVs in 2019 is forecast to decrease by 24% to VND552bn as there are no one-off items (FSO Orkid) like last year (total VND189bn).

    For 2019, we project revenue and net profit for the parent company at VND17,258bn (+17.9% yoy) and VND1,152bn (10.0% yoy), respectively.

    Valuation and recommendation

    Favourable oil prices will ensure the construction of major oil & gas projects. We expect to see new projects come online from 2019. PVS with its leading position in upstream, is set to benefit.

    We rate Accumulate for PVS with a target price of VND28,000 per share, based on the FCFF and PE method. Including the VND500 cash dividend, we arrive at a total return of 16%, based on the closing price on 23 May.