PVS (Petro Vietnam PTSC)

# Large Workload to Bolster Profits from 2024-2026

As highlighted in our previous sector report, we believe that Vietnam's oil and gas industry is returning to its "golden era" (similar to 2011-2015) due to sustained high oil prices, which serve as a catalyst for new projects.

Unlocking these oil and gas projects not only brings significant M&C backlog value but also positively impacts other PVS service segments. Consequently, Q1/2024 parent company net profit grew by 40% YoY, despite flat revenue. For Q2/2024, we estimate pretax profit at VND 232 billion (-21% YoY).

2024 is pivotal for PVS as it embarks on key projects like Lô B, Sư Tử Trắng, and Lạc Đà Vàng. Typically, the first year involves surveying, designing, and procuring equipment, with major disbursements and work expected in 2025 and 2026.

We project an 8% CAGR for parent company net profit from 2024 to 2026, compared to 1% for the preceding five years (2019-2023). Currently, PVS trades at a P/E of 22x (it means the market is evaluated the annual net profit growth is at 25%), above the 5-year average of 17x. We believe this price reflects much of the company's growth potential from winning numerous projects. We set a target price of VND 42,400/share, recommending a NEUTRAL rating for this stock.

Sector	Ticker	Year	WD	CODE	Value (vnd/%)	Growth to Previous
DK	PVS	2023	Y	Revenue	19,373,600,000,000	18.37%
DK	PVS	2022	Y	Revenue	16,366,400,000,000	14.77%
DK	PVS	2021	Y	Revenue	14,260,000,000,000
DK	PVS	2023	Y	Net Profit	1,060,000,000,000	0.89%
DK	PVS	2022	Y	Net Profit	1,050,700,000,000	39.96%
DK	PVS	2021	Y	Net Profit	750,700,000,000	5.75%
DK	PVS	2020	Y	Net Profit	709,900,000,000

## Projected Profit for the Second Half of 2024 Looks Promising

We estimate a 6-month pretax profit of VND 600 billion (+7% YoY) for the first half of 2024, achieving 38% of our projection. For Q2/2024, revenue and pretax profit are estimated at VND 4,490 billion (-5% YoY) and VND 232 billion (-21% YoY), respectively, as the company is still executing projects and hasn't finalized progress payments.

Historically, the company tends to book more profit in the latter half of the year, particularly in Q4. For instance, Q4/2021 saw a significant drop due to a VND 92 billion unusual loss from joint ventures, despite most quarters recording profits over VND 150 billion, mainly due to issues with the FPSO Lam Sơn lease contract. Additionally, in Q4/2023, pretax profit fell by 20% YoY despite a 27% YoY revenue increase, primarily due to a 128% YoY rise in administrative expenses.

In the construction industry, year-end is typically a time for finalizing completed work volumes to process contractor payments and assess business performance for year-end bonuses. 

Based on this, and current project information, we estimate H2/2024 profit to grow over 80% YoY. For the full year 2024, we project parent company net profit at VND 1,250 billion (+22% YoY), with corresponding EPS of VND 2,355.

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Vietnam FDI

2023

FDI into Vietnam rose by 3.5 percent from a year earlier to USD 23.18 billion in 2023, the largest amount since the series began in 1991. FDI pledges (vốn đăng ký), which serve as an indicator of future FDI disbursements, grew 32.1% year-on-year to USD 36.6 billion. Singapore, Japan, and Hong Kong were the leading source of foreign.

According to the agency, the major investment destinations in the country this year include Ho Chi Minh City, Hai Phong, Quang Ninh, Bac Giang, Hanoi, Bac Ninh, Binh Duong, and Dong Nai.

This year, foreign investors have invested in 18 out of 21 economic sectors, with processing-manufacturing receiving 23.5 billion USD or 64.2% of the total FDI capital (up 39.9% year on year), real estate nearly 4.67 billion USD (up 4.8%), power production and distribution 2.37 billion USD (up 4.9%), and finance-banking 1.56 billion USD (up nearly 27 times).

In 2023, 111 countries and territories have invested in Vietnam, led by Singapore with over 6.9 billion USD, accounting for 18.6% of total FDI inflows, a rise of 5.4% year on year. Japan ranked second with nearly 6.57 billion USD, while Hong Kong came third with 4.68 billion USD.

English - Vietnamese

Processing-manufacturing: Công nghiệp chế biến - chế tạo

FDI pledges: Vốn đăng ký

FDI: Vốn thực hiện

Power production and distribution: Sản xuất phân phối điện