PVD: Unexpected capex in deep water project (BUY TP: VND19,896)

BUY

Current price: 16,800

Target price: 19,896

Upside: +18.4%

Our view

Unexpected capex for deep water project. PVD V should be operational in Brunei starting from April 2021. However, management estimates possible upfront capex for drilling equipment at USD30-35 mn, which we had not previously factored into our model.

The drilling business should improve in 2020 on increased day rates and higher workload. PVD stated that average day rates have increased by 10% YoY to USD65,000, underpinned by high regional utilization of 80%. This level typically triggers a significant increase in day rates. The drilling schedule in 2020E should be busier than it was in 2019 and the land rig should return to work in 1Q20. Utilization is likely to increase in 2020 given less downtime now that most rigs have secured jobs in Malaysia (except for a 30-day transport period for PVD VI). In addition, the two hired rigs should be operational starting from Nov 2019.

Model revisit: cutting our 2020E forecasts. Our new FY2020 revenue forecast is VND5,792bn, which is 25% lower than our previous forecast but still reflects growth of +21.9% YoY. We also cut our FY2020 PATMI forecast by 58% to VND317bn (+213.9% YoY). We slash our forecasts because 1) the land rig will be idle until 1Q20, 2) PVD VI will have a 30-days rig move in 2020, and 3) we have reduced our assumptions for drilling services and trading due to the dampened domestic market.

3Q19 results update. 3Q19 PAT declined by 75.9% YoY to VND27.1 bn mainly due to 1) the land rig temporary shutdown and 2) lower utilization (3Q19 utilization fell to 91% in 3Q19 from 94% in 3Q18) that was due to an unexpected 2-month rig move (PVD II – PVD VI). For further detail, please see our 3Q19 results note.

We reiterate BUY but trim our valuation by 8.3% to VND19,896, implying a FY2021 EV/EBITDA of 6.3x. We think the adverse news is more than reflected in the share price and retain our positive view on PVD.

Please access the link for our complete report:20191106 PVD updates v2

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