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Hoa Phat Group (HSX: HPG)
Market leading steel producer
11
Copyright Viet Capital Securities
Que Ngo
Analyst
Tel: +844 6 2626 999 ext. 194
Petro Technical Services Corp (PVS)
The beginning of the upward cycle
mailto:[email protected]:[email protected]8/10/2019 Pvs - Bcpt Ban Viet
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PVSThe beginning of up cycle
2
Company overview PVS is the leading provider of petroleum non-drilling
technical services
The Company has six core businesses, includingSeismic Survey, Marine Service, Production Service,
Supply Base and Ports, Mechanical & Constructions,
and Operation & Maintenance, which complete the
integrated one-stop shop for O&G operators
Investment thesis Robust growth thanks to 1) Dominating position in
core businesses driven by organic growth strategy, 2)
Successfully exploit the monopoly position in supply
base, 3) Full-range non-drilling technical services for
O&G operators , and 4) Increasing O&G activities from
upstream to downstream
Risks Inherent risks in O&G operation
Sizeable supply bases mostly depend on Vietnam O&Gprospect
Adverse oil price movement may stall E&P activities
Market Cap US$1.2B Rating BUY
Avg 30-day trade value US$8M Targetpx VND60,800
Foreign ownership 28% Div yld 3.2%
Key Financial Metrics 2011A 2012A 2013A 2014F
Revenues (VND bn) 24,313 24,595 25,419 28,675
NPAT (VND bn) 1,419 1,169 1,576 1,875
Op. profit margin (%) 5.1% 4.8% 7.6% 7.6%
NPAT margin (%) 5.8% 4.8% 6.2% 6.5%
EPS, fully dil. (VND) 5,714 3,925 3,524 4,194
EPS growth (%) 23.8% -31.3% -10.2% 19.0%
Dividend/Share (VND) 2,000 1,500 1,200 1,200Dividend yld (%) 5.5% 4.1% 3.3% 3.2%
EV / Sales 0.4 0.4 0.5 0.5
EV / EVBITDA 2.9 2.9 3.6 3.6
Price / Cashflow 3.4 0.0 0.0 0.0
Price / Earnings 6.4 9.3 8.6 8.9
Price / Book 1.5 1.7 1.6
Return on assets (%) 7.0% 6.0% 7.5%
Return on equity (%) 27.2% 18.2% 19.2%
Debt-to-equity (%) 85.8% 57.7% 36.3%
Note: NPAT = net profit after tax and minority interest
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3
Company Overview- An O&G non-drilling technical service provider
- ONE STOP-SHOP: A well blended business model
- High concentration of revenue and profit in core business
Content
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Operating in one of the five key sectors of PVN
4
PVN
Exploration &Production
Technicalservices &
Transportation
Gas pipeline &Petroleum
Trading
Refining,Petrochemical &
FertilizerPower Others
PVS
PVD
PVC
PVT
PVEP
Vietsovpetro
GAS
PV Oil
BSR
DPM
DCM
PV Power PVF
PVI
PET
Others
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A well blended business model
5
1. Seismicsurvey and
ROV
2.Mechanical&
Construction
3. Operation&
Maintenance
4. Marine
services
5. ProductionServices
6. Supplybase & Ports
1. Provide 2D & 3D seismic and
geophysical surveyto evaluate O&G
potential and ROV system for underwater
reparation & maintenance
2. Offshore engineering and
constructionservices
3. ProvideO&M services for
offshore structures
4. Provide offshore service
vessels for E&P activities
5. Provide specialized
tankers, named FPSO/FSOfor
serving oil production
6. Provide supply base, ports,
and al related logistic
services for O&G operators
Source: Based on PVSs website
ONE-STOP SHOP SERVICE
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The four biggest businesses contribute almost 90%to revenue
6
Source: Based on revenue figures in PVS 2013 financial statement
25,417
10,031
5,318
4,763
2,241
-
5,000
10,000
15,000
20,000
25,000
30,000
Total M&C Marine
services
ROV O&M Supply base Production
service
Others
VND bn
35.2%
20.1%
18.8%
14.1%
5.6%
4.1%2.2%
100%
Revenue contribution by segment Seismicsurvey
M&C
O&M
Marineservices
FSO/FPSO
Supplybase
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and almost 80% to gross profit, as high-margin supply base gains contribution
7
2,669
475
762
426
435
329
-
500
1,000
1,500
2,000
2,500
3,000
Total M&C Marine
services
ROV O&M Supply base Production
service
Others
VND bnGross profit contribution by segment
100% 17.8%
28.6%
16.0%
16.3%
12.3%
6.6%
2.5%
Source: Based on revenue figures in PVS 2013 financial statement
Seismicsurvey
M&C
O&M
Marineservices
FSO/FPSO
Supplybase
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8
Sustainable Competitive AdvantagesOne-stop O&G non-drilling technical services
Dominate in core businesses thanks to determined organic growth
Exploit the monopoly position in supply base
Benefit from O&G growing demand from upstream to downstream
Content
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1. Seismic Geophysical Survey and ROV servicesThe first brick for E&P activity
Largest fleet of two
2D/3D seismicvessels and twosurvey vessels
Extensive fleet ofdeepwater ROVsystems
Solutions forseismic and
geophysicalsurvey and
subseaservices
9
Binh Minh 2D seismic survey vessels
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1. Seismic Geophysical Survey and ROV services (Cont.)
10
0.0%
8.9%
12.9%
8.9%
10.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 1H14
VND bn
Revenue
GP
GPM
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2. Marine servicescover full period of field exploration and development
Largest fleet ofAHTS vessel,
DP vessel, tugboat, diving
support vessel
Hire morevessels from
foreign players
Experiencedcaptains and
crew
95% ofmarketshare
11
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2. Marine services (Cont.)
12
10.0% 9.4%
10.7%
13.2%
9.1%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
0
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 1H14
VND bn
Expanding GPM with CAGR 17%, double sales revenue CAGR of 9%
Revenue
GP
GPM
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3. Production services (FPSO/FSO)
13
Largest fleet ofFPSO/FSO
Replace the
need ofinvestingpipeline
Suitable forsmall-scale
fields
Cost-effective
solution foroil
operators
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3. Production services (FPSO/FSO)
14
Name
Total investment
(mn USD) Ownership Contract length Contractor
FSO MV 12 180 33%
20072014
Plus 23 one year option
Korea National Oil
Corporation
FSO Orkid 169 49% 2009 - 2019 Talisman Malaysia
FPSO Ruby II 300 60% 2010 - 2020 Petronas
FSO Bien Dong 1 149 51% 2013 - 2023 Bien Dong JOC
FPSO Lam Son 400 51% 2014 - 2024 Lam Son JOC
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3. Production services (FPSO/FSO) (Cont.)
15
0.0%
32.2%
18.7%
16.0%
8.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 1H14
VND bn
Revenue
GP
GPM
Outstanding Rev. CAGR of 121% from 2011 - 2013
Note: Excluding profit sharing from PVSs JV in production services
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4. Supply Base & Port ServicesMonopoly base owner in O&G
16
NHON HOI REFINERY
NGHI SON REFINERY
CAN THO REFINERY
DUNG QUAT REFINERY
LONG SON REFINERY
VUNG RO REFINERY
Current
Approved & Financed
Approved but not financed
NAM VAN PHONG
Nationwidedeepwater
supply baselocated incore O&Gactivities
Modern
facilities andskillful
workforce
Logistic
heart forO&G
operators
VUNG TAU( 2 ports)
DA NANG
( 2 ports)
HAI PHONG
( 2 ports)
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4. Supply Base & Port Services (Cont.)
17
26.4%27.0%
26.7%23.6%
21.1%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0
200
400
600
800
1,000
1,200
1,400
1,600
2010 2011 2012 2013 1H14
VND bn
Revenue
GPGPM
Solid Rev. CAGR of 15% from 2010 - 2013
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5. Mechanics & Construction
18
Engineering Procurement Construction Installation
Target to conquer 100% ofrepair and 30% of new building
demand, translating to 20% ofoffshore market share
Unit: USD mn 2012 2013 2014
Offshore O&G work 597 981 897
Refinery - - 11
Thermal Power Plant - - 50
Total 597 981 957
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5. Mechanics & Construction (Cont.)
nt + Construction 19
2.6%
3.5%
0.0%
4.7%4.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2010 2011 2012 2013 1H14
bn VND
Revenue
GP
GPM
0% margin due to provision booked for excess
cost in Ethanol Dung Quat project
Improving GM with FY10-13 CAGR of 25% vs. Revs CAGR of 7%
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6. One-Stop ServicesT&I, HUC, O&M
Oil &Gas
projects
Operation &Maintenance
Transportation,installation, hook
up,commissioning ,
and repair
Manpower supply
Materials &equipment supply
20
6 O S S i &I HUC O& (C )
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6. One-Stop ServicesT&I, HUC, O&M (Cont.)
nt + Construction 21
7.5%
10.6%
14.9%
19.4%
13.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2011 2012 2013 1H14
bn VND
Revenue
GP
GPM
Improving GM with FY10-13 CAGR of 18% vs. Revs CAGR of -10%
B fit f O&G i d d f t
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Benefit from O&G growing demand from upstream
22
0
2
4
6
8
10
12
14
16
320
340
360
380
400
420
440
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Crude oil production ('000/bpd)
Natural gas production (bcm)
Increase O&G
production from
upstream until 2017
Increase E&P activities to
push up production
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The 3 main risks to our investment thesis
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The 3 main risks to our investment thesis
25
RISKS MITIGATING FACTORS
Inherent risk
Dependent on O&G projects
Oil price movement vs. E&P activities
_ Weather condition & accidents & property
damagesdelay project completion
_ Supply base segment growth slows or become
underutilized if refinery plant construction is
delayed or canceled
_ Core businesses face contraction if VN O&G
activities is frozen
Strategic positioning to tackle demand
from nearby IZ
Enhanced capabilities of manpower and
facilitates to bid for regional projects
Historically won EPC/EPCI contracts for
India, Malaysia, and Brunei
Current FSO/FSPO vessels are
securely contracted for the full life ofoil field
_ Adverse oil price movements
slow down inE&P activitieslow demand & growth for
FSO/FPSO & marine services
Insured against fire/damage for itsproperty & business failure
Content
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26
Valuation & RecommendationAttractive pricing against regional and local peers
Representative stock for O&G sector with cheap pricing and upside potentia
Content
Forward PER = 8 9x 65% upside potential to regional peers of 14 7x
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Forward PER = 8.9x65% upside potential to regional peers of 14.7x
27
Ticker DESCRIPTION
Mkt Cap
(USD)
Forward
P/E (x) ROE (%) P/B (x)
EV/EBITDA
T12M (x)
PVS VN Equity 783.9 8.9 22.7 2.0 3.3
DEHB MK Equity Offshore maintenance services 972.8 12.8 19.8 4.6 18.7
AMRB MK Equity Marine services to offshore O&G 428.6 10.8 12.5 1.9 19.7
002469 CH
Equity
Engineering design & general
contracting of petrochemical
refining projects 640.1 15.8 14.0 4.0 13.3
002554 CH
Equity
Design & develop O&G field
development &provide
engineering services 1,009.8 28.2 8.1 4.8 60.2
1623 HK Equity oil field equipment and services 963.0 9.8 14.4 2.1 13.3
1251 HK Equity Integrated oil business 771.8 9.6 17.8 2.6 10.5
SAKP MK Equity
full fledged upstream O&G
company 7,861.0 14.4 15.2 2.3 16.6Median 928.0 12.8 14.4 2.6 16.6
Weighted Average 1,793.7 14.7 14.9 2.8 19.7
Forward PER = 8 9x 61% upside potential to domestic peers of 14 3x
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Forward PER = 8.9x 61% upside potential to domestic peers of 14.3x
28
Ticker DESCRIPTION
Mkt Cap
(USD) P/E (x) ROE (%) P/B (x)
EV/EBITDA
T12M (x)
PVS VN Equity 783.9 8.9 22.7 2.0 3.3
PVD VN EquityPETROVIETNAM DRILLING ANDWE 1,325.6 10.8 23.1 2.7 6.8
PVT VN Equity
PETROVIETNAM
TRANSPORTATION 187.1 13.0 7.7 1.3 6.9
PXS VN Equity
PETROLEUM EQUIPMENT
ASSEMBLY 57.6 8.1 21.3 1.9 4.9
GAS VN Equity PETROVIETNAM GAS JOINT STOCK 10,191.1 14.8 33.6 6.1 8.5
Median 756.3 11.9 22.2 2.3 6.8
Weighted average 2,940.3 14.3 31.9 5.6 8.3
Stellar performance in 1H14
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Stellar performance in 1H14
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1H performance Reasons
-
500
1,000
1,500
2,000
1H13 2H13 1H14
Gross profitOthers
M&C
M&E
Ports
ROVFSO
Maritime service
+16.7%
VND bn
1. The number of service vesselsincreased by 8%
2. All supply bases operated profitably
3. Completion of key O&M projects
4. New operation of FPSO Lam Son from
June 2014-
5,000
10,000
15,000
1H13 2H13 1H14
VND bn RevenueOthers
O&M
M&E
Supply base
ROV
Production services
Marine services
+13.6%
-
200
400
600
800
1,000
1,200
1H13 2H13 1H14
NPAT
+45.6%
2H strong outlook
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2H strong outlook
30
2H outlook Catalyst for our forecast
1. The number of service vessels keep
increasing2. Gross profit margin expansion thanks
to 2 new service vessels
3. All supply base operate profitable
without losses as in previous years
4. New operation of FPSO Lam Son from
June 2014
0
500
1,000
1,500
2,000
1H13 2H13 1H14 2H14F
VND bn Others
O&M
M&E
Supply base
ROV
Production services
Marine services
+16.7%
+15.2%
-
5,000
10,000
15,000
20,000
1H13 2H13 1H14 2H14F
VND bn Others
O&M
M&E
Supply base
ROV
Production services
Marine services
+13.6%
+12.2%
-
200
400
600
800
1,000
1,200
1H13 2H13 1H14 2H14
NPAT
+45.6%
+11.9%
Yes. We are bullish !!!
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Yes. We are bullish !!!
31
Upside (*) Par 62% 67% 39%
EPS 4,194 4,407 3,526
EPS growth % 19% 25% 0%Implied P/E 9.7 8.9 10.6
(*): excluding dividend of VND1,200/share
Valuation scenarios Methodology (base case)
Weighted avg.
Forward PE of
regional peers 14.7
Forward PE of
local peers 14.3
Weighting 50%
Target PE for
PVS 14.5
0
10,000
20,000
30,000
40,000
50,000
60,00070,000
Today Base case Best case Worst case
60,80063,900
51,100