Initiation of coverage: PVD — Drill, baby, drill! Becoming a global provider of integrated drilling services(s)
04/06/2019 - 08:20
Target price: 24,535
- FY 2019 utilization rate to reach 95% vs. 85% last year.
- FY 2019 average day rate to reach USD 60,000, up by 7% YoY.
- PVD is bidding for a deep water project in Brunei starting in 2020.
Extending its operations overseas. PVD mainly operated jackup rigs domestically historically, but it secured contracts for three jackup rigs in Malaysia in 2018 and another rig in 2019. This clearly demonstrates that PVD is not totally dependent on domestic E&P – a major positive change, in our view.
Short-term catalysts: higher day rates, more workload. Strong oil prices have sent the FY2019E day rate to USD 60.000, a +7% YoY increase. PVD’s 2019 utilization should reach 95%, a remarkable increase from just 85% in 2018. Assuming the market remains hot, we agree with management’s view that the FY2020E day rate may reach USD 65,000 in 2020E.
Yuanta vs consensus. Our 2020E forecasts are 84% higher than the market consensus. We believe the Street is ignoring the potential for the PVD V rig to be operational in Brunei from 2020. We also believe that the consensus has not yet factored in the hired jackup rig that PVD contracted out from October 2019.
We initiate coverage with BUY and VND 24,535 target price (implying 0.7x FY2020E PBR) based on our FCFE model and EV/EBITDA multiple approach.
Our view: PVD is an outstanding competitor with international peers due to its strong safety record, solid management, and ability to provide integrated services. With four jackup rigs already contracted overseas, FY2019E utilization should hit 95% (up 10ppt YoY) with day rates up 7% YoY. PVD’s bid for a Brunei deep-water project could offer stable work for TAD PVD-V for six years starting from 2020. We think the consensus is ignoring a much-improved outlook, and we initiate coverage with a Buy rating on PVD.
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Please access the link for our complete report: PVD — Drill, baby, drill! Becoming a global provider of integrated drilling services(s)
Analyst: Binh Truong, email@example.com