PVD – Outlook intact despite bleak 1Q results – Update

• Jack-up utilisation rate and day rates are improving but have yet fully covered for drilling fixed costs, which led to net loss of VND56.2bn in 1Q22.
• We believe in stronger recovery in quarters ahead as current strong oil price environment is likely to heat up regional drilling market in medium-term.
• Reiterate ADD with a lower target price (TP) of VND30,500.

Lackluster 1Q22 results as jack-up (JU) utilisation rate remained low
1Q22 net revenue surged by 108.4% yoy to VND1,145.9bn on the back of: (1) the contribution of TAD rig, (2) revenue recognition from an outsourced rig, and (3) the recovery of well service segment (+83.6% yoy). However, the slow recovery in JU utilisation rate (just 60%) and JU day rate (+4% yoy) did not fully cover warm-stacked costs of JU rig fleet, leading to a gross loss of VND13.2bn in drilling segment. Besides, PVD recorded lower affiliates income, but higher non-core business expenses coming from financial activities and other activities in 1Q22. As a results, PVD posted a 1Q22 net loss of VND56.2bn (compared to a 1Q21 net loss of VND103.8bn).

Stronger recovery in quarters ahead due to drilling market strengthening
Though regional drilling market is on track to recovery, PVD posted a modest recovery in JU day rate in 1Q22 (+4% yoy). This is likely as some drilling contracts has been awarded when the drilling market stayed in low base in term of JU day rate (PVD I, PVD III). Thus, we lower our average JU day rate assumption by 10.0%/2.9% for FY22-23F, leading to the downward adjustments in FY22-23F NP by 32.6%/9.3%, respectively. Fundamentally, we are still believe in PVD’s performance recovery in quarters ahead as: (1) all PVD’s rigs have secured drilling contracts for the rest of this year and beyond, (2) drilling market is expected to strongly rebound thanks to oil prices spike, which could translate to higher JU day rate for PVD’s fleet, and (3) TAD rig officially reactivated from Jan 2022. We estimate PVD to record a significant growth in FY22F NP from 2021 low base (+17.4 times yoy), then attaining a NP CAGR of 45.1% in FY23-24F. Besides, PVD plans to pay share dividend of 10% for 2021.

Reiterate ADD with a slightly lower TP of VND30,500
Despite 1Q22 lackluster results, we believe in PVD’s business rebound in coming period as the current extremely high oil price environment will heat up E&P activities globally, dragging to drilling demand rebound. Hence, we maintain our ADD rating for PVD with a lower TP of VND30,500 on the adjustments in EPS forecasts. Our TP is still based on the target FY22F P/BV of 1.15x. Re-rating catalysts are higher oil price and stronger-than-expected regional drilling market recovery. Downside risks come from the decline in oil price and lower-than-expected JU utilisation rate/day rate.

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