Will PVD sustain its profit growth?

According to VCBS, PVD would generate 6.753 trillion VND in revenue in 2024, a 15% increase, and an after-tax profit of 559 billion VND, a 3.5% rise over the previous year.

Turning Profitable Thanks to Core Business

PVD recently released its consolidated financial report for Q4/2023, which showed sales of over 1.747.4 trillion VND, a 19.82% increase, and a post-tax profit of over 194 billion VND, 3.6 times greater than the same period in 2022. PVD's revenue for 2023 was approximately 5.811,7 trillion VND, up 7%, with a post-tax profit of more than 540.6 billion VND, compared to a loss of 154.8 billion VND in 2022. Thus, PVD outperformed its sales objective by 7.6% and its profit target by more than 400%.

Long-term debt makes for 85% of PVD's total financial debt. The majority of this long-term debt is a 114 million USD loan for the PVD VI drilling rig, for which PVD successfully obtained a 7-year repayment extension until 2030. PVD currently has a debt-to-equity ratio of 22%. PVD's cash deposit level of 3.534 trillion VND allows it to settle short-term commitments, according to VCBS.

Expectations for Drilling Rig Rentals

According to the US Energy Information Administration (EIA), crude oil prices are predicted to continue over 85 USD/barrel in 2024, boosting oil and gas exploration and extraction activity. This gives PVD the possibility to establish drilling contracts with advantageous service prices.

S&P Global predicts a 6% increase in the average rental price for jack-up rigs in Southeast Asia in the last 6 months of 2024. This is due to the limit  ed availability of new rigs and fully engaged current rigs.

With the increased demand for drilling, PVD now has a large number of project possibilities, allowing it to pick contracts with significant profit margins. Furthermore, other nations in the area, including Thailand, Indonesia, and Malaysia, require drilling rigs for new projects. As a consequence, all of PVD's rigs are in use, with four jack-up rigs projected to run until 2025, with an operational efficiency of more than 99%.

Significant Challenges

PVD intends to invest in new drilling rigs by acquiring an existing rig on the market for an anticipated cost of more than $200 million USD. 70% of the capital will be borrowed, with 30% coming from internal sources. This figure is equal to the amount invested on the PVD VI rig between 2014 and 2015.

PVD had intended to acquire a drilling rig for $130 million USD, however it was sold to another Middle Eastern corporation. Building a new jack-up rig may presently cost about $300 million USD per rig. With such a significant expenditure, PVD's rigs must rent for at least $110,000 USD per day to break even. As a result, a substantial investment may result in additional debt if the rental price falls below expectations. This presents a big issue for PVD in the near future.

Furthermore, the potential of dropping oil prices might harm PVD's income and profitability. Additionally, currency concerns and overseas clients' payment abilities might have a substantial influence on the company's sales and profitability.

As a result, if PVD cannot overcome these obstacles, it may struggle to achieve significant growth in 2024.