Oil & gas sector: High oil prices as a strong driver

For 2022, KB Securities expected oil prices to remain high with an average of USD68/barrel compared to an estimate of USD61/barrel in 2021.

Leverage from oil prices

In 3Q21, high world oil prices made up for the business results of oil and gas businesses that were negatively affected by the fourth coronavirus wave in Vietnam. In particular, the 3Q NPAT of PV Drilling & Well Services (PVD) YoY, PV Technical Services (PVS), PV Gas (GAS) all grew 47.3% YoY, 8% YoY and 19% YoY, respectively.

For 2022, KB Securities expected oil prices to remain high with an average of USD68/barrel compared to an estimate of USD61/barrel in 2021. GAS could be a beneficiary of the high oil price because of its high correlation in price with world oil prices and Vietnam's tendency to shift to using natural gas and importing LNG for electric generation. Besides, oil and gas prices above the breakeven level of USD55/barrel helped upstream companies like PVD and PVS grow. For PVD, TAD rig will be put into operation under exploration contract with Shell Brunei after four years of delay. For PVS, FSO/FPSO joint venture and M&C activities will explode.

Meanwhile, Vietnam National Petroleum Group (PLX) will recover in 2022 after Vietnam's transportation activities, especially the aviation sector, are back to normal in the "new normal" phase. The reopening of economic activities in Vietnam and globally in 2022 will boost oil consumption, thereby improving the freight rates for transporting oil and petroleum products by PVT. KB Securities also expects that PVT's new fleet expansion will help it take advantage of business opportunities in the coming months. Besides, KB Securities expects Binh Son Refinery (BSR) to operate at full capacity this year when Vietnam enters the phase of living with COVID.

"Vietnam's oil and gas stocks face risks of a low free float due to delayed equitization. Meanwhile, gas field projects have been facing the risk of being behind schedule for approval. However, if these projects are approved, it could cause the market to encounter oversupply and pose risks to the investment of LNG terminals", KB Securities said.

Stock picks

Among oil and gas stocks, KB Securities recommended watching PV Gas (GAS) and PV Transportation (PVT). For GAS, given high demand for electricity and the plan to raise the proportion of gas power (including LNG power) in the National Power Development Plan 8 (NPDP8), the prospect of LNG segment should be positive and become an important driving force of GAS in the coming time. Based on P/E valuation method, business outlook as well as possible risks, KB Securities recommended buying GAS shares. The target price is VND125,000/share, 26.8% higher than the closing price on December 16, 2021.

KBSV believed that PVT's transportation segment would face many challenges at least until mid-2022 because: (1) freight rates remain low as global oil demand cannot rebound quickly to the pre-pandemic levels; and (2) domestic demand from two main oil refineries Dung Quat and Nghi Son is supposed to be moderate as transportation restrictions are hardly removed completely given rising new COVID-19 cases in Vietnam.

Since the beginning of the year, PVT has bought five new ships, including three oil/chemical tankers, one LPG carrier (VLGC), one bulk carrier, and liquidated two old oil/chemical tankers, Sea Lion and Jupiter. Based on the discounted cash flow (DCF) valuation method, KB Securities maintained its buying recommendation for PVT shares with a target price of VND 27,500/share, 19% higher than the closing price on December 9, 2021.