PVD – Share price rally already factored in recovery – Update

• 3Q21 net profit (NP) grew 72.6% yoy to VND67bn, showing the clear recovery in PVD’s businesses on the drilling market heating up.
• TAD rig starts the long-term drilling campaign in Brunei this November, opening a new chapter after over 4-year cold stacking.
• Downgrade to Hold with a higher TP of VND32,800 as we believe the recent stock price surge has already reflected the company positive outlook.

Strong 3Q21 earnings recovery on better utilisation ratio

3Q21 revenue declined 20.4% yoy to VND1,011bn due to no revenue recognition from outsourced rigs (compared to the average of 1.7 outsourced rigs in 3Q20) and the 15% yoy decrease in jack-up (JU) day rate. However, 3Q21 gross profit still increased by 51.6% yoy to VND119.4bn mainly due to the improvement in drilling segment on higher JU utilisation rate (88% in 3Q21 vs 55% in 3Q20), recording a 94% yoy narrow in drilling’s gross loss to VND3.1bn. Moreover, 3Q21 financial income rose 41.7% yoy to VND55.1bn thanks to a double in FX gain. Overall, PVD reported a 72.6% yoy growth in 3Q21 NP to VND67bn, signaling the clear recovery in PVD’s businesses. For 9M21, PVD reported a 39.6% yoy drop in revenue to VND2,661bn and a net loss of VND30.4bn. Nevertheless, we believe in stronger 4Q21F ahead thanks to the recovery in drilling market and PVD would post positive net profit this year.

Ready for the recovery from 2022 onwards

According to PVD, PVD 5 (TAD rig) officially starts the long-term drilling contract for Shell Brunei this November, opening a new chapter for PVD’s most modern drilling rig after over 4-year cold stacking. We estimate TAD rig to contribute c.24% of PVD’s drilling gross profit in FY22-23F. Besides, PVD 3 would serve the drilling campaign in Malaysia with over 1-year contract from later-November. As the oil price rally to heat up the E&P activities in both domestic and regional markets, we believe PVD could get more contracts in regional countries like Malaysia and Thailand, boosting FY22-23F JU utilisation rate to 90%. Hence, we forecast PVD’s net profit to greatly recover from 2022 onward, recording the growth rate of 487.4%/28.1% yoy in FY22-23F, respectively.

We see current valuation already baked in reasonable recovery prospects

On the current oil price hike combining with the improving business results in FY22F thanks to TAD rig reactivation and solid JU fleet prospect, we raise the FY22F target P/BV from 0.8x to 1.0x, leading to the higher target price (TP) of VND32,800. However, we downgrade our rating to Hold as we believe the recent share price rally has largely priced in PVD’s positive outlook in FY22F. Upside risk is further jump in oil price. Downside risks are lower-than-expected JU day rate and the decline in oil price that could hamper E&P activities.

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