PVD – FY20 results beat expectation – Update

• PVD reported VND184bn in FY20 net profit, flat yoy, mainly driven by bad debt provision reversal and strong performance of affiliates.
• We reiterate Hold and increase TP slightly to VND22,900.

4Q20 performance hurt by sluggish regional drilling market

PVD’s 4Q20 net revenue declined 40.7% yoy and net profit fell 57.6% yoy due to the lingering effects of the regional capex cut in the oil and gas sector in 2020. Although rig utilization rate improved from 55% in 3Q20 to 71% in 4Q20, this was still lower than the 95% rate seen in 4Q19. In addition, average day rate fell 4.3% yoy and there was lower workload in the well services segment (revenue -31.2% yoy).

Affiliate income and provision reversal supported FY20 results

The company reported a 4.0-pts contraction in FY20 GPM, despite the 19.9% yoy growth in full-year revenue, due to the contribution of 3 leased rigs which commanded quite low GPM (2-3%) and additional expenses incurred relating to Covid-19. However, the company managed to keep full-year net profit flat yoy at VND184bn, thanks to (1) VND105bn provision reversal on bad debt collection (vs. VND0.6bn in FY19), and (2) a two-fold increase in income from affiliate (especially Baker Hughes) to VND216bn. Net profit exceeded our FY20 forecast by 12.6% as we assumed a higher effective tax rate and higher loss from minority shareholders.

Another contract award solidifying FY21F outlook

On 22 Jan, PVD announced to sign a contract with JVPC for a drilling program at Block 15-2 off Southern Vietnam comprising of 3 firm wells and 1 option well, which would be served by PVD III rig after its current contract with Kris Energy. So far, two out of four of PVD’s owned jack-up rigs have confirmed jobs for 1H21F. We expect drilling demand to improve from a trough in 4Q20, supported by a resilient oil price which has stayed over US$50/bbl since Dec 2020.

Reiterate Hold at slightly higher TP of VND22,900

We raise our FY21-23F EPS forecasts by 2.6%-7.7% as we tweak our forecasts and lower the income tax rate assumption in line with FY20 numbers. Thus, our multiple-based TP is raised slightly by 1.8% to VND22,900, based on target FY21-23F P/BV of 0.7x. Upside risks to our forecasts are a higher-than-expected oil price and improved liquidity of the market which could boost stock price. Downside risks are slow bad debt collection and lower-than-expected jack-up utilisation rate.

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