Four Major Growth Drivers
These four main drivers include: Strong earnings growth; attractive valuations; stable oil price outlook in the high range; and the benefits from the Block B O Mon gas field.
EXTRAORDINARY EARNINGS GROWTH
The Oil & Gas Exploitation group’s earnings grew by an exceptional 320.2% in the first quarter of 2024. Several businesses reported a strong earnings rebound, such as PVD. During the period, PVD recorded revenue of VND 1,755 billion, an increase of 43.1%; after-tax profit of VND 148 billion, an increase of 184.2% over the same period last year. This was mainly due to the increase in jack-up rig rental rates in the first quarter by around 34% compared to last year; increased revenue from drilling rigs due to one rig operating from the end of March in the first quarter while there were no drilling rigs for hire last year; and increased revenue from drilling-related services, resulting in a strong growth in profit compared to the same period last year.
Similarly, the Vietnam Oil and Gas Technical Services Corporation (PVS) also reported a strong 34% increase in first-quarter profit to VND 304.7 billion compared to the same period last year. This was also the highest profit PVS has achieved in the last five quarters, mainly due to an increase in gross profit and an increase in profit from joint ventures and associates due to higher profit from joint ventures and associates when consolidated in the financial statements for the quarter compared to the same period last year.
This year, the Oil and Gas Technical Service has set a modest business plan with a target revenue of VND 15,500 billion and after-tax profit of VND 660 billion, down 29% and 38% respectively compared to 2023. Thus, at the end of the first quarter of 2024, the corporation had completed 24% of the revenue target and 46% of the profit target for the whole year.
Another company in the industry that also recorded impressive profit in the first quarter was the PetroVietnam Oil Pipe Coating Joint Stock Company (PVB). During the period, PVB reported a 208-fold increase in revenue compared to the same period last year, reaching VND 123.2 billion; after-tax profit of VND 20.5 billion, while last year it reported a loss of VND 7.1 billion. This is the highest quarterly profit in the last four years for PVB.
In 2023, PVB was awarded and signed service contracts with Vietsovpetro for the RC8, R8.RC9, Dai Hung – Phase 3 and Kinh Ngu Trang projects with a total value of VND 348.5 billion, of which the Kinh Ngu Trang contract was VND 292 billion. The company has completed the execution of the RC8, R8.RC9, Dai Hung – Phase 3 coating contracts and a portion of the Kinh Ngu Trang Project contract. In addition, the company has also signed contracts for non-industry services with other customers with a total contract value of approximately VND 70 billion.
STOCK PRICES RETURN TO “STARTING POINT”
Unlike other industry groups where stock prices surged immediately after the announcement of first-quarter earnings, the oil and gas group showed no significant interest from cash flow. The stock prices of this group are currently trading at a good price range after the recent strong market correction.
For example, PVD fell sharply from its peak in early April to VND 30,250 per share at the trading session on May 6, equivalent to the price in February 2024. Similarly, PVS is currently being valued at VND 40,000 per share, the same price it has been accumulating throughout 2023, while PVC is at VND 14,300 per share; PVB at VND 24,500 per share.
Compared to other industry groups on the market, the oil and gas group’s stock prices have not changed significantly at present, while many other stocks have increased strongly since the beginning of the year due to recovering business results.
According to FiinTrade’s analysis team, the industries currently in the low valuation range include Banks P/E 9.8; Real Estate 14.6; Oil and Gas Exploration 20.6. On this basis, FiinTrade forecasts that the group with expected cash flow to be maintained in the coming period includes: Oil and Gas Exploration, Retail.
OIL PRICES CONTINUE TO STAY HIGH
In the medium term, oil stocks continue to be supported by oil prices. OPEC+’s next output meeting is scheduled for June 1. Sources familiar with the matter told Reuters that OPEC+ will extend its voluntary production cut plan beyond June if global oil demand does not increase.
With a total cut of 2.2 million barrels per day, the global crude supply will be tightened in the near future. Furthermore, the ongoing conflict between Russia and Ukraine and escalating geopolitical tensions in the Middle East continue to add volatility to the global crude market and raise concerns about a possible supply shortage.
In this context, the EIA forecasts that global production will increase by only 0.4 million barrels per day in 2024, compared to 1.8 million barrels per day in 2023.
Meanwhile, global crude demand continues to rise as major economies such as the US and China show signs of recovery. The US Energy Information Administration (EIA) forecasts that global crude consumption will increase by 1.4 million barrels per day in 2024, outpacing supply growth.
VNDirect expects that the current supply/demand balance in the oil market will keep Brent crude prices high, averaging $85 per barrel in 2024. In 2025, when OPEC+’s production cut deal is expected to expire, oil prices may come under pressure to decline to $80 per barrel. Overall, the high oil price environment will be conducive to boosting E&P activities worldwide.
Domestically, the FID award for the Block B gas field development project could be imminent, a major growth driver for the Vietnamese oil and gas industry.
