PVS – Strong recovery from core businesses – Update

• 1Q22 net profit (NP) grew 49.5% yoy to VND216bn, higher than that of 30% yoy of 1Q21, coming in at 23% of our full-year forecast.
• We expect current high oil price environment to set the stage for PVS in negotiating FSO/FPSO contract renewal.
• Upgrade to ADD on the recent price weakness.

Strong 1Q22 earnings, marking the recovery in PVS’s core businesses
1Q22 net revenue strongly recover by 44.2% yoy to VND3,769bn thanks to contribution from newly awarded EPC contracts in 2H21. However, 1Q22 gross profit just increased by 7.8% yoy as these projects has been in the early stages. In the period, G&A expenses dropped 21.2% yoy thanks to lower labor costs and lower provision expenses, and affiliate income kept playing a main role in PVS’s business with a growth rate of 13.8% to VND162bn. These led to a 49.5% yoy growth in 1Q22 NP to VND216bn, fulfilling 23% of our full-year forecast.
High oil price environment is ideal for FSO/FPSO contract renewal
In 4Q21, PVS recorded the negative affiliate income mainly as the company booked provision expenses for FPSO Lam Son as it has not finalized the extension contract after 30 June 2022. In our view, the current high oil price base will set an ideal condition for PVS to negotiate the contract renewal for FPSO Lam Son as well as FPSO Ruby, solidifying the main driver of the company with a CAGR of 24.1% in FY22-23F. Notably, the company will also participate in FSO bidding for Block B project once the project is kicked off. We consider this will be a potential upside catalyst for PVS in coming times.
We forecast FY22-24F NP to achieve a CAGR of 26.7%
At 2022 AGM, despite no mention of implementation time, PVS expect Block B project to create many job opportunities for the company in coming years. The company also targets offshore wind power business to become the long-term growth driver, in which PVS will participate in this segment as an investor as well as an EPC contractor. For 2022, PVS targets a conservative plan with revenue of VND10,000bn (-29.7% yoy) and profit after tax of VND488bn (-28% yoy). In our view, PVS will easily exceed this guidance and expectedly record a NP CAGR of 26.7% in FY22-24F, driven by: (1) the solid contribution of FSO/FPSO joint ventures, and (2) the improved prospect of M&C business from 2022. In addition, PVS will pay a cash dividend of 8% and 7% on par value for FY21-22F.
Upgrade to ADD on the price weakness with unchanged TP of VND35,500
Following oil price spike, PVS starts to show the recovery in its core businesses with positive 1Q22 performance and the M&C segment rebound. We consider the recent market correction has brought PVS share back to buy territory. Thus, we upgrade our rating to Add with unchanged TP of VND35,500. Downside risks come from the decline in oil price and further delays in major projects award.

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