PVD – Stay tuned for a bounce-back in 2H – Update

• 2Q21 net profit drop 86.5% yoy to VND8.6bn, marking a hard 1H21 with net loss of VND95.4bn.
• PVD has signed leasing contracts of its four jack-up (JU) rigs in 1H21 which will secure the drilling schedule till end-2021 and beyond.
• Reiterate Add with a slightly lower target price of VND26,100.

Positive gross profit of the drilling segment is the bright spot in 2Q21
2Q21 net revenue decreased 24% yoy to VND1,112bn due to the 21% yoy decline in 2Q21 JU day rate and no leased rigs compared to the average of 2.44 leased rigs in 2Q20, which blurred to the JU utilisation rate recovery (from 78% in 2Q20 to 92% in 2Q21). In 2Q21, drilling segment recorded a gross profit of VND15,9bn after four consecutive quarters of losses, leading to 6.2% pts amelioration in 2Q21 blended gross profit margin (GPM). However, 2Q21 bottom line still slumped 86.5% yoy to VND8.6bn on the back of: (1) a double in G&A expenses as PVD booked a provision expense of VND28.5bn for bad debt of KrisEnergy, and (2) a 50% yoy drop in affiliate income to only VND34.5bn.
For 1H21, PVD posted a 47.2% yoy decline in net revenue to VND1,662bn and a net loss of VND95.4bn due to the bleak drilling market in the first half.

Jack-up utilisation rate is on the way to recovery from 2H21F
According to the 2021 AGM, all four JU rigs have been contracted for the drilling programs in 2H21, in which PVD III is expected to operate in Malaysia from this October with the long-term contract for Repsol Malaysia. Besides, PVD is also actively participating in bidding for FY22 drilling projects in Malaysia and Thailand. Meanwhile, PVD V (TAD rigs) is delayed its reactivation from 3Q21 to 4Q21 due to the complicated situation of Covid-19. Despite higher-than-expected difficulties in 2021, we see that the company outlook is still positive, particularly from 2022 onwards on the expected JU utilization rate/day rate recovery as well as the reactivation of TAD rig.

Reiterate Add with a slightly lower target price (TP) of VND26,100
We revise down FY21F EPS by 47.9% to reflect the lower-than-expected JU day rate, the delay in TAD rig reactivation and the bad debt provision. However, we believe that the difficulties in 1H21 have been largely priced in and the share price would reflect (1) the market sensitivity on strong oil price rally, and (2) the company strengthen outlook on TAD reactivation and the JU utilisation rate improvement in coming times. Hence, we reiterate Add for PVD with a slightly lower TP of VND26,100 (-2% from the previous report), still based on the target FY21-23F P/BV of 0.8x. A potential re-rating catalyst is strong oil price. Downside risks come from lower-than-expected oil price and the delay in TAD rig operation.

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