PVD (PVDrilling) Company Visit October 2011

Transcription

1 PVD (PVDrilling) Company Visit October Preview: 3Q11 EBT margin is expected to be higher than 2Q11 largely due to no booking of provision for Science and Technology Development Fund According to PVD s management, PVD achieved VND2,299bln in revenue and VND293.9bln in NPAT in 3Q11, representing 6.5% and 0.3% yoy growth respectively. Thus, after 9 months of 2011, with respective accumulative sales and NPAT of VND6450bln and VND820bln, PVD already completed 80.6% and 91.1% its 2011 sales and NPAT plans. While the detail figures have not been provided, we speculate that the improved NPAT margin in 3Q11 (12.8%) compared to that of 2Q11 (10.9%) could be largely attributed to the fact that PVD was not supposed to book any provision for the Science and Technology Development Fund in 3Q11, which is booked every 6 months as 10% of the EBT. 4Q11: TAD runs from Oct 15; only two leased rigs will be in used; and EBIT margin is to decline due to higher administration costs related to the settlement of new rig and provision for Science and Technology Development Fund TAD rig: As far as we are concerned, the TAD rig, which is on schedule to be used at the Bien Dong JOC on the Hai Thach and Moc Tinh gas discoveries in Blocks5-2/5-3 offshore Vietnam, was already deployed by Oct 15. With around 77 days in operation till 2011 year end and 97% expected utilization rate, we forecast that PVD s 4Q11 top line could be added by VND318.5bln. Leased rig: However, what is gained from TAD in 4Q11 will be made up for the loss from losing one of its leased fleet in the last quarter of the year. According to PVD s management, the lease contract over the Aquamarine Driller 1

2 with Salamander was renewed only until Oct Therefore, in our valuation model, we only took into consideration two of its leased fleet as follow: Day rate Est. 4Q11 Revenue Rig Client Start End (USD/day) (VND bln) Maersk Convincer Phu Quy JOC 120,000 Nov 2010 Nov Key Hawaii PVEP 119,000 Sep 2011 Nov Source: Company data, SSIResearch estimate, Oct 2011 High SG&A expense with impact on EBIT margin: Historical observation showed that whenever PVD brings a new rig into operation, some sort of settlement costs would incur. Such costs, the breakdown of which is unknown to us, may be pretty big, ranging from VND20bln to VND40bln. For the time being, we speculate that around VND30bln in cost may also incur in 4Q11 when PVD brings TAD rig into operation. In addition, since 4Q10, on semi-annual basis, PVD will book provision for Science and Technology Development fund as 10% of the total 6-month earnings before tax. Based on our estimated PVD s 2H11 earnings before tax, we expect that around VND57bln will be added into administration expense in 4Q11 as provision expense, lifting the Administration expense/sales to 8.9% compared to 8.7% in 3Q11 and 4% in 1Q11. Based on the above assumptions, we expect that for this whole year, PVD may achieve VND9,144bln (21% yoy growth) in sales and VND1,068bln (20.5% yoy growth) in net profit attributable to equity holders of the parent company, translating into an EPS of VND5,075/share, up 21.1% yoy Outlook: Significant NPAT growth of ~49% expected from operation of TAD The possibility of PVD III rig to be re-leased by end of 2011 is high Rig Type W.D (Ft) Clients Day rate Start date End date PVD I IC 300 Hoang Long JOC 125,000 Oct 2011 Jun 2012 PVD II IC 400 Dai Hung PVEP POC 124,000 Jul 2011 June 2012 PVD III IC 400 VietsovPetro 124,000 Jan 2011 Dec 2011 Source: Company data, SSI Research estimate, Oct 2011 By end of 2011, the contract on PVD III with VietsovPetro will come to end. Though it is now being uncertain to us whether PVD III will be renewed or will be resigned with another client, we are convinced that the possibility that PVD III will be leased is high, taking into consideration (i) the average demand for rigs in Bien Dong is about 10 rigs/year and (ii) the number of rigs which are in operation domestically is

3 No Name Of Unit Type Drilling Contractor Owner / Block 1 Ocean General Semisub Diamond Offshore Santos Maersk Convincer Jack Up Rig Maersk Drilling Phu Quy POC 3 PV Drilling I Jack Up Rig PV Drilling Hoang Long JOC 4 PV Drilling II Jack Up Rig PV Drilling Dai Hung 05.1a 5 Galveston Key Jack Up Rig Transocean Cuu Long JOC 6 Ensco 107 Jack Up Rig Ensco Premier Oil 12W 7 Ensco 105 Jack Up Rig Ensco PM3-CAA 8 Key Hawaii Jack Up Rig Transocean PVEP POC 9 PV Drilling III Jack Up Rig PV Drilling VietsovPetro Source: 14 Oct 2011 and is expected to have stable day rate. Also, the day rate is expected remain at around USD 120,000-USD125,000/day. In comparison with SE Asia average day rates for Jackups with WD of over 300 ft.(usd130,897/day), PVD s are 4.7% lower. TAD rig: in full operation with at least one-year guarantee 3

4 When TAD operates in full in 2012 at a fixed 5-year day rate of USD205,000/day, we expect that it would add VND1,585bln in revenue and VND268bln in net profit. As PVD owns 62% of the rig, around VND167bln in NPAT will be added to PVD s bottom line after deducting for minority interest. As investors are already aware of the fact that TAD is operating adjacently to the territorial-conflict zone between Vietnam and China, in the leasing contract over the TAD rig, there is already one term indicating that PVD will receive at least one-year payment for TAD since the date of ceasing TAD operation if any disputes arise. TAD: favorable tax treatment as being classified as high-tech rig At the moment, PVD expects to depreciate TAD rigs in 20 years (similar to PVD II and PVD III) though according to accounting policy, straight line depreciation in 7-10 years is being regulated for drilling machineries. Also, according to PVD s management, as being categorized as high tech rig, TAD will be subject to 10% CIT in the first 15 years. Also, TAD will be exempted from CIT tax for the first 4 years since operation and then 9 years later at 50% of 10% CIT. Gross profit margin: to improve due to lower proportion of leased rigs in total revenue Since it is rather challenging to forecast revenues for PVD s leased fleet as it depends largely on spot demand and whether PVD could lease from any other owner at any point of time for re-leasing purposes. Thus, for the time being, we expect only two leased rigs will be operating and revenue comes in will be VND1,244bln (12.5% total revenue) compared to estimated ~20.6% in As the gross profit margin for leased fleet is moderate at 7-8%, we expect that its decreasing proportion in total revenue in 2012 will boost 2012 gross profit margin 28.3% from 22.2% in Overall CIT may lift up in 2012 While TAD enjoys 0% CIT tax in 2012, from 2012, some of CIT privilege that PVD is enjoying will come to end, lifting up the overall CIT that the company may have to pay on its EBT, in particular Units Current CIT 2012 CIT PVD I, PVD II 0% 12.5% PVD Offshore 12.5% 25% PVD Training 12.5% 12.5% PVD Tech Operating activities 0% 0% Services activities 0% 5% Est. effective tax rate ~12.5% Source: Company data, SSI Research estimate, Oct

5 Tender Barge: pressure on financial expenses in 2012 According to PVD s management, PVD already arranges the USD120bln loans for the building of a tender barge (TB) with PV Ship Yard. This TB will be used for Chevron s drilling activities which last for almost 20 years ahead. This investment is recently known to be a BCC (similar to TAD s case) in which PVD owns 51%, the rest belongs to Seadrill (49%). Once completed, PVD is expected to consolidate 51% of Tender Barge into its FS. Since the information rated to the interest rate and disbursement procedure currently remain unknown to us, we have not taken into account the effects of this loans on PVD s loan and interest schedule for 2012 and thereafter. Based on the above analysis and assumptions, we expect that PVD will be able to achieve VND10,151bln (11% yoy growth) in net sales and VND1,635bln (49% yoy growth) in net earnings after minority interest, which translate into an EPS of VND7,120 in 2012, up 40.3% yoy. Investment view 2009A 2010A 2011E 2012E Net sales 4,096,780 7,572,009 9,143,701 10,150,507 Gross profit 1,239,991 1,757,977 2,027,350 2,872,637 Operating profit (EBIT) 965,891 1,305,291 1,382,859 2,157,026 Earnings before income tax provision 925,935 1,018,629 1,223,533 1,985,229 Net earnings 817, ,542 1,068,371 1,634,675 EPS 3,870 4,190 5,075 7,120 Source: Company data, SSIResearch Estimate, Oct 2011 While fundamentals of the sector has not changed much, we have revised our estimates in accordance with the above updates on the TAD, company s expense and CAPEX plan (investment of new Tender Barge). Overall, amid economic difficulties, PVD still enjoys strong growth in both revenue and bottom line with more impressive growth expected in 2012 than Our estimated 12-month forward EPS for PVD is now at VND6,608/share. Our 1-year target price for PVD stock is VND49,564/share, 29.1% higher than the current price of VND38,400/share. Therefore, we maintain BUY recommendation for PVD stock. Besides, as PVD is capital-intensive company, we pay attention to market value of its rigs in comparison with investment cost. According to the management, the current replacement costs for its three rigs is around USD220bln on average, higher than the investment cost for PVD 1 USD 114bn operational from 2007 and similar to the investment cost of PVD II & PVD III(215bln and 225bln respectively). 5

6 RATING Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock s expected return relative to the market required rate of return, which is 22% (*). A BUY rating is given when the security is expected to deliver absolute returns of 22% or greater. A SELL rating is given when the security is expected to deliver returns below or equal to negative 10%, while a HOLD rating implies returns between negative 10% and 22%. *The market required rate of return is calculated based on 1-year Vietnam government bond yield and market risk premium derived from using Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents. DISCLAIMER The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user. CONTACT INFORMATION Phuong Hoang Director, Institutional Research & Investment Advisory phuonghv@ssi.com.vn Nga Nguyen Research Analyst ngan@ssi.com.vn SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, Regulated by the State Securities Commission HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) Fax: (848) info@ssi.com.vn HA NOI 1c Ngo Quyen Street Ha Noi City Tel: (848) Fax: (848)