PVD – Gaining momentum amid oil price recovery – Update

• We expect the recent oil price increase to accelerate regional drilling market’s recovery, leading to more secured outlook for PVD.
• We lift our TP to VND22,500, based on a higher target FY21-23F P/BV of 0.7x (from 0.4x) to reflect PVD’s improved NP outlook and market sentiment.

Clearer outlook for drilling segment in FY21F

In Dec 2020, PVD said it was awarded a drilling contract by ENI at the newly-discovered Ken Bau field, which is scheduled to start in Jan 2021. We believe drilling one well would take at least three months; as such, this contract for two firm wells and one option well could last for over six months, adding to PVD’s secured 2021F orderbook. With the new contract award, we see higher visibility for PVD to achieve our average 2021F jack-up utilisation rate of 80%, with 2-3 rigs working in Vietnam and one rig returning to Malaysia (working for Rosneft). We expect OPEC+’s production cut commitment could help sustain the oil price above US$50/bbl, supporting capex disbursement and drilling demand.

Better-than-expected day rate environment

For the two recently-signed contracts with Kris Energy and ENI, the company’s bidding day rates were higher than our expectations as there were few bidders and PVD has an advantage in terms of established presence in key Southeast Asia (SEA) markets while competitors could face limited mobility due to Covid-19 restrictions. Bassoe Analytics, a large rig broker and market researcher, estimates PVD VI rig’s day rate to be US$65,000, while the day rate for another newly-signed 1-year contract of a similar jack-up in the SEA region was around US$75,000. Therefore, we raise our 2021F average day rate assumption by 8% to US$65,000 (similar to 2020 levels) with annual growth of 3% from 2022F, leading to 10.8%-29.9% increase in our FY21-23F EPS forecasts.

Lift TP to VND22,500 and reiterate Hold

Given the high beta of 1.5x, PVD’s share price jumped over 50% over the past month amid strong market re-rating (market P/E increased from 16.2x to 19.8x). We change our valuation method from a combination of DCF and P/BV to only target P/BV, as we think the share price reflects investors’ short-term perspective amid the market re-rating and oil price jump. We raise our target FY21-23F P/BV from 0.4x to 0.7x, which should better reflect the company’s improved outlook with the resumption of the deepwater rig and a trading premium to peers on the back of a younger fleet and positive net profit growth (vs. losses reported by peers). Potential upside risks include further jump in oil prices. Downside risks include higher-than-expected operating costs and slow debt collection.

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