PVS – Share price rally driven by oil price hike – Update

• PVS posted a 3.5% yoy decrease in FY21 net profit (NP) to VND602bn due to lower maintenance provision reversal.
• We forecast net profit CAGR of 26.7% in FY22-24F as strong oil price could boost service rates as well as demand for oil & gas technical services.
• Downgrade to Hold with a higher target price (TP) of VND35,500.

Strong oil price to benefit PVS’s core business in coming period
Amid the oil market tightness due to low upstream investments during many years, the Ukraine crisis exacerbated this situation, boosting Brent oil price to reach the highest level since 2008 at nearly US$130/bbl. In our view, oil price will rebalance in coming times (around US$100/bbl) once geopolitical tension cool down and additional supply from the US and Iran. As an upstream service provider, strong oil price will indirectly affect PVS with a time lag as PVS’s contracts in core segments (M&C, FSO/FPSO) typically span for multiple years while other segments (offshore vessel, port base) are likely to benefit sooner from a potential recovery in service rates.

Awaiting the kickoff of Block B – O Mon chain
After delaying for many years due to a bottleneck in O Mon III power plant project, we expect Block B – O Mon project to have a final investment decision (FID) in late-2Q22F, setting the stage for Block B – O Mon project chain to kick off in 2H22F. As PVS has proven its abilities in constructing oilfield platforms in both domestic and overseas market, we believe the company would have many opportunities to participate in this project, ensuring workload for PVS’s M&C segment in coming years.

We forecast net profit CAGR of 26.7% in FY22-24F
Following oil price rally, we believe PVS’s all segments to gain benefits when oil & gas activities bounce back. Particularly, strong oil price base will give more incentives for relevant units to restart the major projects in Vietnam, benefiting for PVS’s M&C segment. Besides, it also creates the favorable condition for PVS in negotiating long-term extension contracts for its FSO/FPSO affiliates, solidifying FSO/FPSO joint ventures performance from 2022. Overall, we expect PVS to achieve a NP CAGR of 26.7% in FY22-24F. Notably, adding offshore wind power development into its core business in late-2021 could open a new business path for the company in long-term.

Recent share price rally driven by oil price hike; Downgrade to Hold
Our TP is raised by 13.8% to VND35,500 on the back of: (1) rolling forward our DCF model to 2022, (2) lower FY22F EPS forecast but increase FY23-24F EPS forecasts, and (3) applying higher target P/E multiple. However, we downgrade our rating to Hold due to recent share price rally on global oil price hike resulting in limited upside. Upside risk is higher-than-expected oil price. Downside risks come from the decline in oil price and further delays in projects award
.

Please follow this link for the full report