PVS – Core activities are getting more solid – Update

• PVS posted a 92% yoy drop in 2Q22 net profit (NP) to VND12bn mainly due to surprising high G&A expenses.
• We lower FY22-23F EPS forecasts by 13.1%/3.4% to reflect higher-than-expected expenses in 1H22.
• Reiterate ADD with a lower target price (TP) of VND33,900.

Lackluster 2Q22 results as surprising high G&A expenses
2Q22 revenue grew 24.7% yoy to VND3.811bn thanks to the increase in M&C segment (+19.7% yoy) and O&M segment (+5 times yoy). However, 2Q22 gross margin (GM) contracted 3.9% pts yoy to 4.0% due to surging input costs. Notably, PVS booked a surprising G&A expense of VND352bn (+54.3% yoy and +134% qoq), as salary fund based on parent company’s performance has been significantly higher than 2Q21. Hence, despite stronger affiliates income (+14.6% yoy) and financial income (127% yoy), 2Q22 NP tumbled 92% yoy to only VND12bn. For 1H22, revenue rose 33.7% yoy to VND7,581bn, but NP declined 23% yoy to VND228bn, just fulfilling 24.3% of our full-year forecast.
New extension contract for FPSO Lam Son
In July, PVS and its partner – Yinson Holdings have received a 12-month extension for the bareboat charter contract (BBC) for FPSO Lam Son starting from 1 July 2022. Furthermore, as oil prices are expected to be resilient on the high base in coming times, we believe PVS to favorably get another extension contract thereafter, solidifying FSO/FPSO affiliates contribution in coming years.
Potential projects in M&C segment bring more upside in long-term
The current extremely high oil price base will set an ideal condition for investors to ramp up E&P activities in Vietnam, especially some major projects like Block B – O Mon, which we expect to kick off in late-2022. Besides, tapping into offshore wind projects could also open a new business path for M&C segment in future as it is a promising segment in Vietnam. We believe these factors can bring more upside for PVS in the future.
We lower FY22-23F EPS forecasts by 13.1%/3.4%
To reflect the higher-than-expected input materials prices (e.g. steel…), we reduce FY22-23F blended GM from 6.2%/6.4% to 5.7%/6.1%, respectively. Besides, we increase FY22F G&A expenses and net financial income assumptions by 9.0%/16.5% to reflect 1H22 results. Consequently, our FY22-23F EPS forecasts are changed by 13.1%/3.4%, respectively.
Reiterate ADD with lower TP of VND33,900
We maintain our ADD rating for PVS with lower TP of VND33,900 following the FY22-23F EPS downward revision. Potential upside catalysts are the kickoff of Block B – O Mon and faster-than-expected progress of offshore wind power investments trend in Vietnam. Downside risks come from the decline in oil price and further delays in major projects award.

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