CASE STUDY OF PV DRILLING CORPORATION

MASTER OF BUSINESS ADMINISTRATION

INTERNATIONAL COLLABORATION PROGRAM

FINANCIAL MANAGEMENT

SEMESTER 2014

BMCF 5103 – CORPORATE FINANCE ASSIGNMENT

FINANCIAL ANALYSIS AND VALUATION

CASE STUDY OF PV DRILLING CORPORATION

Instructor: Dr. Cao Minh Man

Student: Do Thi Bich Ha

ID No: CGS00018220

Class: MBAOUM0514 – K14

HCMC, October 2014

1

TASK: As a financial analyst, you have been asked to analyze a firm. Your task is to make a

recommendation as to whether or not to invest in this firm given the analysis you

undertake.

ABSTRACT

In the last few years we have witnessed growing interest in Vietnam security market,

especially when the real-estate and gold markets become frozen which caused some strong

measurements from the Government towards the economic policy as well as banking interest.

The cash flow tends to security market but the fact is that not all investors can earn money.

So the major concern is how to make the optimum decision aiming maximize benefit and

minimize the risks. The adequate consideration between cost– the price to pay and benefit–

the value get in return is the key for any wise investment decision.

Financial statement analysis is the most widely way to manage proactively. By using

different accounting tools and techniques, a financial statement analysis helps us to

understand risk and profitability of a firm, and then make our own selection decision to invest

on their stock.

This case study will provide a good understanding of what the financial statement

analysis is, through an in –depth illustration of PV Drilling and Services Corporation (PV

Drilling)’s analysis, presenting how to synthesize financial information into final out-come

PV Drilling’s price per share. By analyzing the financial statement, we could consider PV

Drilling’s revised share price and initiate the coverage of PV Drilling with a suitable

recommendation.

TABLE OF CONTENT

ABSTRACT……………………………………………………………………………………………………..………….2

INTRODUCTION……………………………………………………………………………………..……..………....4

1. Rationale of the study…………………………………………………………………………………………..4

2. Methodology………………………………………………………………………………………….………4 ~ 5

I. FIRM ANALYSIS…………………………………………………………………………………………………6

1. Introduction………………………………………………………………………………………………………..6

2. Organization Structure …………………………………………………………………7

3. Share capital/ Shareholders’ structure…………………………………………………………...8 ~ 10

II. RISK AND PERFORMANCE……………………………………………………………....…10 ~ 14

III. INVESTMENTS……………………………………………………………………………….…..…14 ~ 20

IV. DIVIDEND POLICY ….……………………………………………………….20 ~ 21

V. CAPITAL STRUCTURE………………………………………………………21 ~ 23

IV. VALUATION………………………………………………………………23 ~ 27

INTRODUCTION

1. Rationale of the study

Financial statement analysis identifies aspects of financial information which relevant

to investment decision. Investors who actively analyze company’s financial health for the

purpose of purchasing stocks, more the others, have a clear-cut distinction between price and

value. Since the value of future cash flows, residual income or dividend, investors evaluate

possible payoffs to verify whether the asking price is reasonable or not (Damondaran, 1994;

Jerald et al, 2010 and Stephen, 2010).

Stock markets in twenty-first century have marked with the expansion of the volume

traded every day. Therefore, decision of trading at the right price is the key factor for

successful investors. For having the right portfolio, investors try to collect as much

information about the stock as they can through all kinds of media. Stephen (2010) indicates

those flows of information as “discordant background chorus” which easily make investors

confused. Investors may react differently in the circumstance of noisy market and none true

value of stocks indication from firm.

Being fully aware of instructing investors about evaluating stock in a rational way, this

case study will provides a good understanding of financial statement analysis and forecasting

into final out-come target stock value. And the author hopes to help investors to pay attention

to long-term value rather than short-term value of stock which contribute to the sustainable

development of Vietnam stock market.

2. Methodology

With the main objective is to help integrate the financial statement analysis in the

decision making of Vietnamese investor through PV Drilling in-depth illustration value. The

reason of choosing PV Drilling as the object of this case study is that PV Drilling is a financial

institution which has been known with diverse financing solutions for PVN’s projects and

other partners within and outside the Oil and Gas industry.

Foundation as a financial institution in the business with full of competitive from

others, PV Drilling’s profitability has been affected by the threat of competitors, substitute

products or services. We therefore take consideration on PV Drilling’s financial statement

which involve income statement, asset and capital structure, financial ratio (profitability,

operating efficiency, liquidity and solvency ratios) and cash flow analysis (operating,

investing and financing cash flows).

The objective of this study is to analyze business activities of PV Drilling in the stage

of 2007 to 2014 basing on secondary data, its annual balance sheets and income statements.

Afterward, the discounted cash flow model is applied in order to calculate the intrinsic value

of PV Drilling, then comparing this value to the value of its current stock price on Ho Chi

Minh stock market. However, the share price that is calculated in this dissertation is much

larger than the stock price of PV Drilling that being traded on the Ho Chi Minh stock

exchange. This means that the intrinsic value of PV Drilling is undervalued, which can be

explained by the downturn of the Vietnamese stock market.

The purpose of this study is to apply macro-environment analysis, industry analysis,

business analysis and valuation methods to find the intrinsic value of PV Drilling. From that,

it can help investors understand about company and make decision to invest or not. This

research consists of three important parts which need to be carried out: business analysis,

financial analysis and prospective. Firstly, business analysis gives us clear view about the

world and Vietnamese economic, the oil services industry situation and the clear strategy for

the development of PV Drilling in future. Secondly, financial analysis helps us to understand

about the financial situation of company at the moment through financial ratio and analysis.

Finally, prospective analysis of will develop forecasted key items in financial statement.

From that, valuation process use information from forecasting to find intrinsic value of stock

price and draw conclusion about stock price. This study can help investors to have a general

view about PV Drilling’s value, accompanied with its competitive position, strategy, and

potential for future development. Therefore, this research can be considered as reference for

investors who are interested in PV Drilling currently and it may recommend them to buy this

stock in coming time. In addition, with some people make further research related to business

analysis and valuation field, the finding of this thesis may be useful.

1. FIRM ANALYSIS

1.1 Introduction

PV Drilling is a professional provider of Drilling rigs and Drilling-related services as well as

manpower supply for onshore and offshore Drilling operation. Over the last decade, PV

Drilling has developed significantly and become one of the leading subsidiaries of Vietnam’s

Oil & Gas Group and a prestigious Drilling contractor in the local and regional market. PV

Drilling is going to expand its operation to further deep-water areas and overseas market to

contribute more to exploration and production of oil and gas resources for Vietnam and the

world.

The primary ingredient that made up the success of PV Drilling is the dedicated and

outstanding human resources who incessantly pursue knowledge and perfection in mastering

the technology, developing the services and creating added values for clients. Therefore, PV

Drilling always concentrates on building and developing a human resource with great

competence and consider it as top priority in the corporate strategy of development.

PV Drilling at a glance

Head office 4th Floor, Sailing Tower, 111A Pasteur, District 1, HCMC,

Vietnam

Founders PetroVietnam

Date of establishment November, 2001

Scope of Work PV Drilling supplies Drilling rigs and offers multiple types of

technical Drilling-related services for oil and gas exploration and

production activities inside and outside Vietnamese territory

Market capitalization 31,520 billion VND (as of September 2014)

Number of employees 1,957 (as of December 2013)

Stock exchange HOSE (Ho Chi Minh Stock Exchange, Vietnam)