PVS - Weak M&C drags H1 earnings despite strong FSO profit

- PVS booked H1 2021 results with revenue and recurring NPAT-MI dropping 35.2% YoY and 34.1% YoY, respectively, which was mainly due to a smaller workload for the mechanics & construction (M&C) segment despite strong profit from the FSO segment. In Q2 2021, PVS’s revenue and recurring NPAT-MI declined 44.5% YoY and 38.6% YoY, respectively.

- M&C gross profit in H1 2021 decreased 5.0% YoY and completed 33.3% of our forecast as PVS only had workload from two projects — Gallaf and the Thi Vai LNG terminal — while most revenue/profit from big projects such as Sao Vang-Dai Nguyet (SV-DN) was booked in 2020.

- Notably, income from FSO/FPSO JVs rose 91.5% YoY and completed 80.8% of our 2021F forecast, which we believe was due to the contribution from the new FSO SV-DN and the FPSO Ruby’s day rate remaining high. However, as this FPSO’s day rate renegotiation for 2021 and beyond has not been finalized, we foresee insignificant change to our forecast.

- H1 2021 revenue and recurring NPAT-MI fulfilled 36.6% and 43.5% of our respective full-year forecasts. These results were within our expectation as we anticipate more M&C jobs will come in H2 2021. We foresee insignificant changes to our current forecasts, pending a fuller review.

Figure 1: PVS’s Q2 2021 results

VND bn (Unless stated)	Q2 2021	YoY growth %	H1 2021	YoY growth %	% of VCSC’s 2021F
Revenue	3,063	-44.5%	5,677	-35.2%	36.6%
Gross profit	261	6.3%	439	0.6%	40.3%
Sales & marketing exp	-27	21.2%	-50	5.3%	49.3%
General admin (GA) exp (*)	-238	118.6%	-429	84.3%	66.4%
Operating profit (EBIT)	-5	N.M.	-39	N.M.	N.M.
Net financial income	64	-10.4%	140	-23.2%	40.6%
Net financial expense	-14	-64.5%	-33	-55.1%	36.0%
Income from FSO/FPSO JVs	151	17.3%	308	91.5%	80.8%
Net other income/loss	10	-93.4%	53	-70.8%	125.6%
Profit before tax	207	-51.9%	428	-29.5%	42.0%
Tax	-24	-82.9%	-81	-58.4%	36.0%
NPAT	183	-37.2%	347	-15.9%	43.7%
Minority interests	-20	-21.6%	-39	11.7%	45.6%
Reported NPAT-MI	164	-38.6%	308	-18.4%	43.5%
Recurring NPAT-MI ()**	164	-38.6%	308	-34.1%	43.5%

Source: PVS, VCSC estimates. Note: (*) GA expenses surged in H1 2021 because the reclassification of outsourcing costs was previously booked in cost of goods sold. (**) Recurring NPAT-MI excludes the impact of provision expenses for the technical issue at FSO MV12. We treat expense/profit from M&C warranty provisions/reversal (booked in other profit) as a recurring item as this is recurring activity for any contractor.