PVD: Victory in Brunei PVD V wins a six-year deep water project

Target price: 21,707

Upside: 19.6%

Event catalysts and risk

• PVD won deep water projects in Brunei.
• Opportunity to offer other related services.
• Oil price volatility affects day rates.
• The PVEP bad debt recovery process may slow down.

PVD won deep water projects. In 2H2020, PVD will move its PVD V to Brunei for a six-year deep water project with day rate of about USD90K. This is below our assumption of USD 130K, but the rig will be operational by 01 April 2021, which is three months earlier than our assumption of 1 Jul 2021. PVD’s key advantages in winning the contract include the rig age of 7 years or less than half that of the other bidder, respectable operating efficiency of 96%, and six years of Zero Lost Time Incidents.

In addition to drilling, we believe that the company has opportunity to offer other related services that typically have higher margin than drilling services. Also, the new client – Brunei Shell Petroleum (BSP) – should enhance PVD’s image as a regional operator and thus promote future business opportunities.

As mentioned in our earlier report, four jack up rigs will remain employed until end-2020. Four jackup rigs will remain utilized to end-2020, equivalent to 95-97% utilization and slightly better than our conservative 2020 utilization assumption of 93.4%. PVD also expects an uptrend in jackup rig average day rates from USD 59k in 2019 to USD 65k in 2020 and USD 75k 2021.

Not just a domestic driller anymore. In our view, PVD has progressed to a different level and is now a global driller with all rigs utilized in overseas projects with little exposure to geopolitically risky domestic E&P activities. PVD is regionally competitive given that it has the second youngest drilling rig fleet in the region (average 8.5 years vs 8 years of the youngest peer) and a respectable safety track record.

We reiterate BUY with target price of VND 21,707 (implying 0.61x FY2020E PBR). We think the Street has failed to factor in PVD’s Brunei contract and expect earnings upgrades going forward.

Please access the link for our complete report:  20190930 PVD express-Note-Company-EDITED 2

Analyst: Binh Truong, binh.truong@yuanta.com.vn