PVD: 1H19 results show turnaround, JU rigs remain utilized to end 2020

Target price: 21,707

Upside: 28.8%

Event catalysts and risk

• 1H2019 results provide further evidence of an operational turnaround.
• Four jackup rigs to remain utilized to end-2020.
• PVD is bidding for a deep water project in Brunei in 2020.
• Oil price volatility affects day rates and thus PVD’s business performance.
• The PVEP bad debt recovery process may slow down.

PVD just released its 1H2019 results which are mainly in line with preliminary numbers. The management, in an analyst meeting on Jul 29, confirmed that JU rigs can secure jobs toward end of 2020 given the drilling market is getting busier. PVD V bidding result will be informed in three weeks. In 3Q19, PVD is confident to recover VND 100 bn bad debt from PVEP. The land rig will only operate 27 days in Algeria in 3Q19.

1H19 financial statements mainly confirmed operational turnaround in drilling business. 1H19 PATMI reached VND 24.2 bn vs the VND 307.5 bn 1H18 net loss. This is mainly attributed to: 1) gross margin expanded to 10.6%, up from 0.2% in 1H18 due to day rate improvement; 2) Profit from JVs rose by 172.5% YoY to VND 52.5bn; 3) other profit reached VND 61.5bn, up from VND 1.5bn YoY.

Management said that the bidding result of deep water project in Brunei will be informed in three weeks from now. As mentioned in an earlier report, four jackup rigs in Malaysia 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 uptrend in JU rig average day rate from USD 59k in 2019 to USD 65k in 2020 and USD 75k 2021.

Cutting low-margin trading and land rig revenue forecast. We cut parts trading revenue forecast by 24% (VND 348 bn) to VND 1,043bn on lower than expected 1H2019. In addition, land rig is only operating 27 days in 3Q19, so we reduce our land rig utilization from 97% to 75% in 2019. Therefore, our new forecast revenue of VND 6,156 bn and PATMI of 316 bn are 6% and 14% lower than the previous forecast. The management is confident in recovering VND 100 bn bad debt from PVEP of 100bn in 2H19, which is not factored in our model.

We trim our target price by 2.7% to VND 21,707 (implying 0.61x FY2020E PBR) after cutting revenue and PATMI forecast. Maintain BUY recommendation.

Please access the link for our complete report: 20190731 PVD — analyst meeting edited

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