Riding the waves of oil and gas stocks

Although the medium-term outlook for oil and gas stocks is quite positive, investors should also be aware of the risks associated with each stock, according to Mr. Nguyen Minh Anh, Head of F319 Investment Group.

Positive Outlook

Many estimates show that oil and gas stocks are gaining as tensions in the Middle East escalate, an area that provides for a significant amount of the world's oil production. If the current dispute expands into a regional war, oil prices will undoubtedly continue to climb dramatically.

Brent oil prices increased to over $80 per barrel in early October 2024, up 5% owing to rising regional tensions. Historical stock trading demonstrates that oil and gas equities are extremely susceptible to oil price fluctuations—when oil prices increase, oil and gas stocks often follow suit.

The third quarter of 2024 continues to offer a wide range of business performance for oil and gas firms. Increased reserves for inventory devaluation harmed some downstream firms, such as PLX, while plant maintenance hampered BSR's commercial performance. However, with maintenance done, BSR's production capacity has returned, and its Q3 2024 business results are predicted to be higher than those of Q2 2024.

Upstream, PVS was awarded two packages for the Block B - O Mon project, in addition to producing components for Singapore's Jurong Power Plant, resulting in a major shift in business performance. PVD's rig rental costs have been secured, and some rigs (PVD I, II, III) are completely booked until 2025, lowering the company's cost constraints.

In the midstream sector, PVT is projected to post strong business results as oil transportation rates stay consistent, with the firm getting three new ships and disposing older ones.

All these factors suggest that, in addition to benefiting from rising global oil prices, oil and gas stocks have a promising outlook, acting as a growth driver for the sector through the end of 2024.

Which Stocks to Consider?

Based on the above analysis, investors may want to consider the following oil and gas stocks:

First is PVD (Petrovietnam Drilling and Well Services Corporation). In Q2 2024, PVD's net revenue reached VND 2,254 billion, up 60%, with after-tax profit at VND 130 billion, down 17% year-on-year. Rig rental prices are on an upward trend. Since rental rates for the rigs are locked in for the duration of their contracts, PVD's growth will come from rigs with new rental rates in 2025 (PVD III) and 2026 (PVD I, PVD II, PVD VI). PVD's net revenue for 2024 is projected to reach VND 7,930 billion, up 36%, with after-tax profit at VND 768 billion, up 42% year-on-year. In 2025, net revenue is expected to reach VND 9,219 billion, with after-tax profit at VND 875 billion. Investors may consider PVD when the stock is around VND 26,000 per share. However, they should be aware of risks related to oil price volatility, which can impact rig rental rates and PVD's profits, as well as risks related to exchange rates and the payment ability of foreign customers.

Second is PVT (Petrovietnam Transportation Corporation). In Q2 2024, PVT reported net revenue of VND 2,994 billion, up 41.6%, with after-tax profit at VND 370 billion, down 5.3% year-on-year. The main contributor to revenue growth in the quarter was the fuel, chemical, and bulk transportation segment, which added VND 730 billion. Additionally, PVT purchased seven new ships, enhancing its long-term transportation capacity for core segments such as oil, chemicals, and bulk goods. Investors may consider opportunities with PVT stock at around VND 26,000 per share for a long-term target of VND 31,650 per share.

Third is PVB (Petrovietnam Coating JSC). PVB’s business results in the first half of 2024 were boosted by the White Dolphin project. In the first six months of this year, PVB achieved net revenue of VND 187.2 billion, up 253.6% year-on-year. After-tax profit reached VND 25.66 billion, up 632.6% year-on-year. The White Dolphin project, with a scale of VND 292 billion, is expected to be completed by Q4 2024, with an estimated VND 100 billion in remaining revenue to be recognized in the second half of this year. The Block B – O Mon project is a key project for the oil and gas industry from now until 2030, with a total investment of nearly $12 billion. Projected revenue and profit from the Block B – O Mon project will bring PVB VND 3,142 billion in revenue and VND 471 billion in after-tax profit.

Currently, PVB stock is in an accumulation phase, and investors may consider accumulating the stock at around VND 28,000 per share.