• We attended PVS’s analyst meeting on June 14 and PVS’s AGM on June 17. 
• Overall, PVS expects a significant breakthrough in revenue and profit by 2025, driven by a substantial M&C backlog (USD1.5bn for wind power including signed & publicly announced contracts, signed & NDA contracts, high potential contracts, and USD1.0bn for Block B). These are supported by increased productivity from the upgraded Vung Tau supply base and bases across the country. Additionally, the company is confident in its offshore wind power business, noting robust demand from Taiwan and Japan, and as such, an almost guaranteed workload for PVS until at least 2030. Regarding the Block B O Mon project, PVS mentioned that it expects insignificant delays in the Final Investment Decision (FID) of PetroVietnam Group and emphasized continued work as a contractor, with timely disbursements and full payments from the operators. These factors broadly confirm our forecast.
• Shareholders approved conservative 2024 guidance for revenue of VND15.5tn (USD608mn; -20% vs actual 2023), and NPAT before MI of VND660bn (USD26mn; -38% vs actual 2023), which are equivalent to 54% and 51% of our respective forecasts. We attribute this to management caution, as historically, PVS’s actual NPAT before MI was higher than its initial guidance by 2x on average, in 2022-2023. 
• Shareholders approved a 2023 cash dividend of VND700/share (in line with our expectation). PVS guides for a 2024 cash dividend of VND700/share (in line with our expectation). For the long term, PVS proposes not to pay cash dividends until 2030 (vs our projection of VND700/share p.a.) to retain profits to meet its huge capex requirements.
• PVS may raise its share capital to VND17.0tn (USD680mn) by 2030, 3.5x vs VND4.8tn as of end Q1 2024) by issuing new shares and paying stock dividends to fund its significant capex of VND70.6tn (USD2.8bn) for the 2024-2030 period.
• Our view: We foresee slight potential upside to our long-term earnings forecast due to (1) the potential for the floating oil storage (FSO) leasing contract for the Yellow Camel and Block B projects, (2) the potential contract extensions for FSO Ruby II and FPSO Lam Son, and (3) potential higher-than-expected topline growth from the ship segment to capitalize on rising global E&P activities. These factors might outweigh the potential higher depreciation expense from higher- than- expected capex (based on PVS’s announced investment plan).

Management shared preliminary 5M results with consolidated revenue of VND6.8tn (+11% YoY) and consolidated PBT of VND573bn (+50% YoY). This growth is mainly driven by M&C segments, following the completion of 4 of 33 foundations/jackets for the Greater Changhua 2a & 4 project (Taiwan, Orsted Client). These results are equivalent to 24% and 34% of our full-year forecasts, respectively. Historically, PVS's preliminary estimates tend to be conservative. In addition, the nature of M&C business revenue and profit is that they are usually booked in Q4. While we await the Q2 financial statement for a more comprehensive review, we foresee insignificant changes to our 2024 NPAT-MI forecast.

PVS may raise its share capital to VND17.0tn (USD680mn) by 2030, 3.5x vs VND4.8tn as of end Q1 2024) to fund its significant capex of VND70.6tn (USD2.8bn) for the 2024-2030 period.

• PVS requires significant capex of VND70.6tn (USD2.8bn) in 2024-2030, including spending for M&C, supply base capacity expansion, floating oil storage investment of the Yellow Camel and Block B projects (~VND10tn) as well as its offshore windfarm (VND60tn) (Figure 1).
• To meet this requirement, PVS may increase its share capital by VND12.2tn (USD488mn, equivalent to 63% of its market cap) by issuing new shares via right issues and paying stock dividends. PVS plans not to pay cash dividends from 2025 to 2030 to retain profits to meet its equity requirements (Figure 2).
• The plan is still in its early stages because PVS needs approvals from various levels, including PetroVietnam and the Commission for the Management of State Capital at Enterprises (CMSC) before proceeding. As a result, specific details are not yet available.

Figure 1: Capex and Equity requirements for the 2024-2030 period

Source: PVS, Vietcap

Figure 2: Equity balance until 2030, and share capital increasing plan

Source: PVS, Vietcap

PVS’s investment plan as a driving force for double-digit growth:

• We foresee potential for floating oil storage (FSO) leasing contracts for the Yellow Camel and Block B projects, given PVS has outlined an investment plan for 2024-2030 including total capex of VND10tn (USD400mn, ~USD200 each) for the two FSO projects (Yellow Camel and Block B) (Figure 1), suggesting strong confidence in winning the bids. We expect these FSOs to contribute to PVS's profitability from 2027 onwards as (1) Murphy Oil targets to extract the first oil from Yellow Camel in H2 2026, and (2) we expect Block B to extract the first gas in 2027.
• We also foresee a potential contract extension for the company’s existing FSOs, Ruby II and Lam Son. PVS’s management disclosed that the contract for FSO Ruby II and FPSO Lam Son will expire at the end of 2024, and will be renewed after that. For FSO Ruby II, PVS is negotiating a new contract with a term of 3-5 years. We understand that when signing a fixed contract, PVS can potentially secure an extension at the same day rate, which was USD92,500 from 2019-2024. We anticipate the new contract will maintain this day rate until 2029. This is above our current forecast of USD92,500/day for 2024-2026 and USD40,000/day from 2027 onwards. For FPSO Lam Son, PVS plans to continue leasing this FPSO on a long term, one-year negotiation basis, above our current projection that it would only contribute to PVS’s earnings until the end of 2024.
• Expanding port boosts PVS’s capacity: PVS’s Vung Tau port spans approximately 200 ha (biggest logistics hub and fabrication yard in the Asia-Pacific region which is PVS’s competitive advantage vs competitors, its second advantage being skilled and cheap labor costs). Currently, PVS is investing to expand its supply base by another approximately 30 ha. After the expansion, PVS expects the M&C and Vung Tau supply bases’ capacity to quadruple vs 2022, potentially boosting the M&C segment’s production capacity to USD1bn by 2025 (vs USD500mn as of end-2022) and USD1.5bn-2.0bn in the long-term. M&C production capacity increased 40% from 50,000 TPA to 70,000 TPA over the past two years with a streamlined production process. This is broadly in line with our expectation.
• The ship segment also has a bright outlook: PVS plans to invest more in vessels throughout 2024–2025, following investment in 2023. In 2023, 70% of PVS's fleet capacity is catered to the overseas market, particularly in the Middle East. This strong international presence positions PVS to capitalize on the projected rise in global offshore capex within E&P activities. 

PVS has disclosed the value of an EPCIC contract for the Central Processing Platform (CPP) for the LDV-A rig to be USD250mn (vs the current projection of USD245mn). Additionally, the company is in the bidding process for the remaining contracts related to LDV-B, the pipeline system, and FSO leasing, and is confident in winning these bids.

Shareholders approved PVS's plan to merge its 100%-owned subsidiary, PTSC Geos and Subsea Services Company Ltd (PTSC G&S) in 2024. This merger aims to streamline PVS's corporate structure, enabling more efficient management and an expansion into survey services for renewable energy. PTSC G&S (with a share capital of VND300bn or USD12mn), which has expertise in oil & gas surveying (including seismic surveys, engineering geology, underground work, and related services for oil and gas exploitation in Vietnam and globally), will expand to  surveys and marine resource assessments for offshore wind farm construction, capitalizing on the growing demand for offshore renewable energy. We believe this move positions PVS to benefit from the booming offshore wind sector, as the rising demand for offshore renewable energy creates a robust demand for survey services for offshore wind farm design.

Export electricity to Singapore project:  PVS is conducting surveys for its offshore wind power project in Vietnam, aiming to export electricity to Singapore through a high-voltage submarine power cable. This project, co-developed with Sembcorp (PVS’s ownership ratio is not yet disclosed but we estimate it at ~40%) involves an installed capacity of 2,300 MW. PVS expects to have wind speed results for the project by early 2025. Preliminary estimates indicate a useful/commercial sales capacity of about 1.2 to 1.4 GW (a utilization rate of 45-50%). PVS anticipates an FID between 2027 and 2028 and COD in 2032-2033. PVS expects for this project to generate significant income from 2032 onwards and projects that the pilot mechanism for the project will facilitate its progress without laws, decrees, or regulations in place. 

Bonus & welfare fund: In 2023, a bonus & welfare fund of 20.89% NPAT (VND234bn) was approved at the AGM, vs our estimates of 12%. This is due to the outstanding performance in the past several years to transform it from a traditional oil & gas services provider to a renewables energy services contractor. For 2024, it proposes a bonus & welfare fund of VND130bn based on NPAT before MI of VND660bn.

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