PVS – Positive outlook intact – Update

• PVS reported a 38.6% yoy drop in 2Q21 net profit (NP) on higher G&A expenses and the absence of provisioning reversal.
• 1H21 net profit subdued 18.4% yoy to VND308bn, fulfilling 33.8% of our full-year forecast.
• Reiterate Add with a higher target price of VND30,200.

Weak 2Q21 result since the absence of provisioning reversal

2Q21 net revenue dropped 44.5% yoy to VND3,063bn mainly due to the lower workload for Mechanics & Construction (M&C) segment. 2Q21 blended gross profit margin (GPM) expanded 4.1% pts yoy to 8.5% trailing oil price rally. Despite strong profit from FSO/FPSO joint ventures (+17.3% yoy) and higher blended GPM, PVS posted a 38.6% yoy declined in 2Q21 net profit to VND164bn on the back of: (1) a 118% surge in G&A expenses to VND238bn, and (2) no recognition of maintenance provision reversal like 2Q20 (VND180bn in 2Q20). Overall, 1H21 net profit subdued 18.4% yoy to VND308bn, fulfilling 33.8% of our full-year forecast.

Renewable energy projects to potentially create more jobs for M&C service

Besides the newly awarded contract in Gallaf Batch 3 project on 29 July, PVS also participated in seismic contracts for major wind projects offshore Vietnam, such as Thang Long and La Gan wind projects. In AGM 2021, the management revealed that PVS aimed to diversify M&C activity in coming times. Hence, we expect these seismic contracts to be the premise for PVS to participate further in other stages of these major projects, especially EPC contractors.

Lower FY21F EPS by 15.2% but raise FY22-23F EPS by 2.8%/4.0%

Due to lower-than-expect workload in M&C and O&M segments combined to the significant surge in G&A expenses in 1H21, we cut FY21F EPS by 15.2%. On the other hand, we slightly raise FY22-23F EPS by 2.8%/4.0% as we incorporate the revenue streams from Gallaf Batch 3 project, which has been awarded in July. Overall, we maintain our optimistic view on PVS outlook with a net profit CAGR forecast of 19.7% in FY21-23F thanks to: (1) the improved prospect of M&C business, and (2) the solid contribution of FSO/FPSO joint ventures due to the expected strong oil price which could trigger a day rate upward revision.

Reiterate Add with a higher target price (TP) of VND30,200

As the current strong oil price could boost the market sentiment on oil & gas stock prices, we upgrade our target FY21-23F P/E from 13.1x to 15.4x (+1.5 std over 4-yr average P/E), which blurs the effect of lower FY21F EPS forecast. Hence, our TP is raised to VND30,200, based on DCF valuation and the target P/E, weighted equally. Potential re-rating catalyst is higher oil price. Downside risks are lower-than-expected oil price and further delays in projects award.

Please follow this link for the full report