MASTER OF BUSINESS ADMINISTRATION

MASTER OF BUSINESS ADMINISTRATIONINTERNATIONAL COLLABORATION PROGRAM

FINANCIAL MANAGEMENT

SEMESTER 2014BMCF 5103 CORPORATE FINANCEASSIGNMENTFINANCIAL ANALYSISANDVALUATIONCASE STUDYOF PV DRILLINGCORPORATION

Instructor:Dr. Cao Minh ManStudent:Do ThiBich HaID No:CGS00018220Class:MBAOUM0514 K14

HCMC, October 2014

2

21

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. Thecash 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 optimumdecisionaiming maximize benefit and minimize the risks. Theadequateconsideration betweencost-thepricetopay andbenefit-thevaluegetinreturn is the keyforanywiseinvestmentdecision.

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 Drillings price per share.By analyzing the financial statement, we could consider PV Drillings revised share price and initiate the coverage of PV Drilling with a suitable recommendation.

TABLE OF CONTENT

ABSTRACT2INTRODUCTION41.Rationale of the study42.Methodology4~ 5I.FIRM ANALYSIS61.Introduction62.Organization Structure 73.Share capital/ Shareholders structure8 ~ 10II.RISK AND PERFORMANCE10 ~ 14III.INVESTMENTS14 ~ 20IV.DIVIDEND POLICY..20 ~ 21V.CAPITAL STRUCTURE21 ~ 23IV.VALUATION23 ~ 27

INTRODUCTION1. Rationale of the studyFinancial statement analysis identifies aspects of financial information which relevant to investment decision. Investors who actively analyze companys 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. MethodologyWith 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 PVNs 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 Drillings profitability has been affected by the threat of competitors, substitute products or services. We therefore take consideration on PV Drillings 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, businessanalysis 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 infuture. 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 Drillings 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 ANALYSIS1.1 IntroductionPV 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 Vietnams 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 office4th Floor, Sailing Tower, 111A Pasteur, District 1, HCMC, Vietnam

FoundersPetroVietnam

Date of establishmentNovember, 2001

Scope of WorkPV Drilling supplies Drilling rigs and offers multiple types of technicalDrilling-related services for oil and gas exploration and production activities inside and outside Vietnamese territory

Market capitalization31,520 billion VND (as of September 2014)

Number of employees1,957 (as of December 2013)

Stock exchangeHOSE (Ho ChiMinh Stock Exchange, Vietnam)

1.2 Organization Structure

1.3 Share capital/ Shareholders structureShare subject to restriction of ownership transfer have a par value of VND 10,000. These shares subject to restriction of ownership transfer that shareholders have no right to sold the shares within 1 to 3 years since the first released date.PetroVietnam is founding shareholder and also the main shareholder of the Group as at 31 December 2013, currently hold 138,828,214 shares, equivalent to 50.44% of total shares in circulation of the Group,the average investors are some domestic and foreign organizations, the individuals just take a small part of the investment.According to Resolution of the shareholders meeting No.01/2013/NQ-DHCD dated 26 April 2013, during year, the Group has issued 38 million additional shares to strategic shareholders and 2 million shares for the Groups employees. As at 31 December 2013, the Group has fully completed shares issuance. As at the date of these converted consolidated financial statements, the Group has received the amended Business Registration Certificates for the additional charter capital. Details as follows:

There is no separation between management and ownership of the company, the Board of Directors, President and CEO, the Supervisory Board and the shareholders have closely coordinated in order for the corporation to achieve operational efficiency, complying with the Regulations of the Corporation and State law. The Board of Directors monitored and gave direction to the Board of Management for the operation of the Corporation in order to fulfill the business plan assigned by AGM. PV Drillings Board of Directors was always considered a united assembly with valuable knowledge, expertise with the management experience that is fair, objective and motivated in expanding the corporation. The Board of Directors has successfully determined the management strategy for the corporations business strategy.All resolutions and decisions from the Board of Directors are made with a firm and unified decision from all or most of the members of the Board on the basis of shareholders interest and the sustainable development of the Corporation.2. RISK AND PERFORMANCE

Financial risks of PV Drilling include market risk (such as foreign currency risk, interest risk and price risk), credit risk and liquidity risk. The Group has hedging these risks exposures by controlling and balancing the cash flows (including foreign cash flows) and closely tracking with market information to have proper hedging instruments.Market risk: The Groups activities expose it primarily to the financial risks of changes in foreign currency, interest rates and prices.Foreign currency risk management: The Group undertakes certain transactions denominated in foreign currencies, consequently the Group exposure to exchange rate fluctuations arise. However, the Group manages to balance the cash inflow and outflow of foreign currencies by negotiating business contracts based on the demand foreign currencies payables to its sources in order to minimize the foreign currency risk. The carrying amount of the Groups foreign currency denominated monetary assets and monetary liabilities as at balance sheet date are as follows:

PV Drilling has the huge advantage when 90% revenue is in UYSD and only 65~70% of expenditure is on foreign currency. The long-term debt is in USD. Besides PV Drilling is the only company allowed to use USD as accounting currency, so that the risk associate with exchange rate is minimized. However, some subsidiaries of PV Drilling is using VND, therefore, treasury team in Finance Department is constantly keeping track on exchange rate and to exchange on time to support operation of entities in the Group.Interest rate risk management:The Group has significant interest rate risk arising from interest bearing loans which are arranged. The Group is exposed to interest rate risk as the Group borrows funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate ratio between fixed and floating rate borrowings.Similar to other foreign currencies, there was no significant effect to operation business result of the Group.Interest rate sensitivity: The Group has significant interest rate risk arising from interest bearing loans which are arranged. The loans sensitivity to interest rate changes was assessed by the Group that may arise at an appropriate level is fluctuation in floating interest bearing loan of higher/lower 30 basis points. Assuming all other variables were held constant and the loan balance at the balance sheet date were the outstanding amount for the next year, if interest rates applicable to floating interest bearing loans had been 30 basis points higher/lower, the Groups profit before tax would have increased/decreased by VND 16,484,356, 536 (2012: VND19,217,141.652).At the moment, long-term borrowings of PV Drilling are USD denominated with floating rate based on LIBOR or SIBOR plus margin. Average interest rate paid by the Group in 2013 is just around 3.5%, which can be seen as the selling point. Although current stimulation packages of Federal Reserve will be gradually tapered in near future leading to increasing interbank rate risk, PV Drilling will employ derivative contracts to neutralize interest rate risk, maintain stable liquidity and the Group will also study other instruments to control financial ratios, ensure operations efficiency.Credit risk:The risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group assess that there is no any significant credit risk exposure to any counterparty because receivables are from huge customers operating in the oil and gas industry and trusted.Liquidity risk management:The purpose of liquidity risk management is to ensure the availability of funds to meet present and future financial obligations. Liquidity is also managed by ensuring that the excess of maturing liabilities over maturing assets in any period is kept to manageable levels relative to the amount of funds that the Group believes can generate within that period. The Groups policy is to regularly monitor current and expected liquidity requirements to ensure that the Group maintains sufficient reserves of cash, borrowings and adequate committed funding from its owners to meet its liquidity requirements in the short and long term.Cash-flow management: Managing cash-flow is always important to P Drilling in ensuring the smooth operation of the Corporation as well as to secure the liquidity, short-term financial viability. Cash-flow report is established by weekly, monthly, to control the collecting liabilities, manage cash-flow, to ensure raising cash timely for business activities and investment. In fact, the liquidity ratio in short-term of PV Drilling is approximately remaining stable at 1.0 times over years of increasing investment activities from 2009-2011.With significant risks and unpredictable fluctuations resulted from the global crisis in 2014, implementation of risk management system has become one of the essential duties in the sustainable development strategy. As a plan, this system has been implemented and launched in the whole Corporation in compliance with the international corporate governance standards and principles. The project will be an effective tool to prevent, forecast all type of existing risk in order to have punctual and relevant solutions. Moreover, the system also raises a clear vision and deep awareness of risk factors and risk management to prevent and come up with timely solutions to deal with risks related to strategy, operation, finance and compliance. At the same time, it also spreads risk related knowledge to all employees across the Corporation and forming a relevant culture in Corporation, which helps increase PV Drillings value and image in the eyes of customers, shareholders and investors.Based on its stock price, PV Drilling has performed well over the past five years.Officially founded in 2001, PetroVietnam Drilling and Well Services Corporation (PV Drilling) has come to be recognised as a pioneer among Vietnamese drillers and a reputable drilling contractor, as well as becoming a member of the prestigious International Association of Drilling Contractors (IADC), only 11 years after its stablishment. Starting as a small repair and maintenance workshop, PV Drilling was keen to develop drilling services as its core business, and that determination ultimately turned it into a drilling contractor with five drilling rigs and the capability of providing a wide range of technical drilling services.PV Drilling rocketed from a firm with $5m of total assets and $800,000 of net profit in 2002 to a corporation with approximately $900m of total assets in 2011 and around $50m after-tax earnings annually. Moreover, the corporation is ranked as the top drilling and drilling-related services provider in Southeast Asia, and as one of the best drilling contractors in the Asia Pacific region. The period 2005 - 2007 also saw many memorable milestones in PV Drillings development. In 2006, PV Drilling finished its equitisation and became one of the first companies in Vietnams oil and gas industry to be listed on the Ho Chi Minh stock exchange. In 2007, PV Drilling not only had its stocks evaluated as a blue-chip on the stock exchange, but also transformed into a group holding company with 12 subsidiaries in which the parent company focuses on drilling services while its subsidiaries concentrate on technical services and drilling-related services. With this structure, all of PV Drillings resources are specialized and strengthened.Since the foundation of the firm, PV Drilling has achieved amazing growth in the previous years. From a double-digit revenue at the inception, PV Drilling has developed into a Corporation with VN 14,867 billion in revenue and VND 1,883 billion in net profit, bringing high and sustainable profits for the Corporation and its shareholders. PV Drilling stock (ticker: PVD) was listed on the Stock Exchange at the end of 2006 and has soon become blue-chips on the exchange. In 2013, share price increased by 60%, well exceed VN-Index growth rate of 22%. This evidence has proved that strong internal forces will lead to higher fundamental values, reputation for the Corporation perceived by shareholders and investors. From this premise, PV Drilling will continue to develop sustainably in the future.3. INVESTMENTSWith a vision of becoming an internationally reputable and reliable drilling contractor and drilling-related services provider in the oil and gas industry, PV Drilling has always been striving to show continuous improvement in services quality, increasing efficiency while maintaining the highest levels of safety and value for clients.As a company operation in upstream segment of oil and gas industry, investment in new-generation, high-technical drilling rigs is competitive strategy to maintain growth space of PV Drilling. Workshop service sector continued to maintain development of such core competencies as inspection, threading, hard banding through increasing investment into additional high technology equipment and machinery, training for skilled technical workers. In 2013, PV Drilling invested in CNC automatic turning machine, Plasma arc transfer welding machine, power wiring systems, ect. with total investment value of VND 27 billion.With the design to supply diversified and packaged services, becoming an One stop service center the place capable of providing all inspection and repair service to customers, PV Drilling focused on developing new service such as Flange Component Fabrication, Rope Access, UWILD, Helideck, ect. in 2013.The development journey of PV Drilling is closely attached with large scaled projects and high level of complexity. This is a fire testing gold of PV Drilling.One important milestone embracing stronggrowth ofour Corporation is February 22nd,2005, when PV Drilling officially signed contract to build a new multifunctional jack-up rig, which is the first ever 120m jack-up rig 100 percent owned by Vietnamese.Since 1999, oil and gas has risen up with increasing demand for exploration and production activities. At that time, besides the JV Vietsovpetro owned and self-operated 90m jack-up rigs, there was no domestic oilfield service company investing and operating its owned rigs due to technological barrier and large investment capital. Hence, drilling market all belonged to foreign drilling contractors.Although PV Drilling was only a small workshop providing oilfield technical service at inception in 2001, PV Drilling had great ambition to become a pioneer in owning and operating high-technologydrilling rig. Despite huge difficulties and challenges at the initial stage, by consensus of all members of PV Drilling, the companys first 120m modern jack-up drilling rig, named PV Drilling I, was commissioned at the beginning of 2005 with the famous rig builder, KeppelFels, and delivered to Vietnam in the second half of 2007 in proud of all engineers in this project and in great appraisement of all companies in this sector. Since that moment, the company has officially operated a drilling rig and achieved strong results. At the same time, PV Drilling also bought a land rig and operated for a clients drilling campaign in Algeria, marking its first step into a foreign drilling market. The success of the first jack-up wholly owned by a Vietnamese drilling contractor led to the investment in two more jack-ups named PV Drilling II and PV Drilling III both of which were completed in 2009. All investment projects had been in line with planned schedules and rigs were delivered on time. PV Drilling has a strong project management team to track and conduct inspection to ensure all rigs complied with international quality. While exploration and production activities in the shallow waters of Vietnam are about to turn mature with the dominant use of jack-ups, the immense potential of the deep water domain is starting to catch the eyes of operators. Spotting an upcoming trend, a Semi-submersible Tender Assist Drilling rig (TAD) was invested in by PV Drilling at the end of 2009. The rig was designed to perform under the extreme conditions of high pressure, high temperature wells, and in the harsh weather of deep-water areas. On February 14 2012, that TAD (dubbed PV Drilling V), completed its first drillingand officially came into operation for Bien Dong Petroleum Operating Company at MocTinh oilfield, marking great breakthrough in advanced drilling technology. The TAD (PV DRILLING V) is great proud of PV Drillings engineers and operational team as PV Drilling has thought of thesolutionof using the TAD for projects at HaiThach MocTinh field which is more efficient and less costly as compared to a semi-submersible rig. The TAD is the 9th, most modern TAD in the world and one of the two large projects was granted the Certification of High-technology application from Ministry of Science and Technology in 2012. These successes have pushed PV Drillings brand to new height when PV Drilling is able to operate the most modern TAD ever.Up to now, all our owned drilling rigs are operating at high efficiency ratio, above 98 percent for jack-up rigs and above 95 percent for the TAD. These successes were owed to great effort, persistence of all our staff, proved brand and reputation of PV Drilling, pioneer of drillers in both Vietnam and regional markets.International competingSince its establishment, PV Drillings management recognised the potential of Vietnams drilling market, which by that time was dominated by foreign drilling providers such as Transocean, Seadrill, Ensco, and others. As a result, a strategy of owning and managing new and modern drilling rigs that would be considered as core business and leverage the reputation of PV Drilling was created to claim back its home ground.It is noteworthy that PV Drilling has only invested in and concentrated on its core business, comprising drilling and drilling-related services. This is the reason why PV Drilling has been immune to the negative impacts of the restructure wave in the country, overcoming the recession and developing in a sustainable way. The corporation provides services in oil and gas exploration and exploitation activities as follows: Managing and operating onshore and offshore drilling rigs; Providing drilling-related services; Providing high-tech well services through joint ventures with foreign partners including BJ Services, Baker Hughes, Expro Group, Oil States, etc.Actual investment spending in 2013 is VND 775 billion, in which 90% has been financed by equity capital. Main investment items of PV Drilling in 2013 include capital contribution into the joint venture PVD Overseas (VND 403 billion), additional capital contribution to the JV PVD Baker Hughes (VND 130 billion); the rest is used to finance purchasing machineries, equipment for drilling rigs, drilling-related services and increasing charter capital at subsidiaries.During the first nine months of 2013 (9M2013) together with thegrowth ofAsian economies, PV Drilling has achieved good results such as net revenue and profit after tax of the Corporation accumulating to VND10,417 billion and VND1,396 billion, surging by 25 percent and 27 percent respectively compared to the same period last year.The drilling market during 9M2013 has been improving thanks to more E&P activities which led to stronger demand ofdrilling rigsand higher day rate. As a result, in Vietnam, the drilling market has been heating up with average day rate reaching USD 150,000/day, increasing by 15 percent-20 percent versus the same period last year. Subsequently, contracts of all owned jack-up rigs have been revised upward with an average increase of 12 percent in 9M2013 vs. 9M2012. PV Drilling has been operating all owned rigs safely and efficiently with 98-99 percent of efficiency ratio, attributing significantly to high and stable revenue and profit.During 9M2013, besides 4 offshore owned rigs operating in Vietnam, PV Drilling has successfully increased total numberof hired rigs operating in 9M2013 to 6 vs. only 3 hired rigs in 9M2012. These hired-rigs add-ons not only contribute to revenue but also improve PV Drillings drilling market share to 55 percent. Thus, revenue from drilling service in 9M2013 has grown by 48 percent vs. 9M2012 and contributes 64 percent of total revenue in this period. Besides, drilling-related service has grown by more than 20 percent in terms of revenue in Q32013.In the investment side, to capture the upward trend of exploration and production activities domestically and regionally; and to serve for the Strategy Cross the sea, Steady to the future, PV Drilling has established a joint venture in Singapore, namely PVD Overseas (in which PV Drilling holds 55 percent) to invest in a newly-built premium jack up rig, expected to put into operation in Q12015. This rig serves the first step of PV Drilling to provide the drillingservicesoverseas with the potential markets like Malaysia, Brunei, Myanmar, etc.Beside some advantages of the drilling market, PV Drilling faces some difficulties in term of limitednumberof owned rigs to capture more market share, dependence on the drilling campaign of oil and gas companies so some drilling-related business lacking behind the target when some E&P activities are delayed or postponed, bad weather conditions as well as storm in the East Sea, etc. Despite of such obstacles, PV Drilling is and will be taking all opportunities to get breakthrough steps in 2013 and achieve sustainable development in the following years.

During period 2011 ~ 2015, PV Drilling examines and approves big investment project such as building new drilling rigs, records settlements for compltete projects, adjust investment projects and increases the investment percentage of PV Drilling in joint ventures, ect.Preparing for a market boomSoutheast Asia is witnessing a boom in energy demand, with lots of oil and gas projects set to be launched between 2012 and 2015, specifically in Vietnam with an estimated budget around $1.51.7bn annually. This scenario promises a busy schedule for drilling contractors. In fact, though most of the rigs are currently operating at maximum capacity, plenty of market space is still in line, just waiting for more rigs. PV drilling is accelerating its acquisition of new vessels to help it penetrate the international market.Besides collaborating with international partners to charter new rigs, PV Drilling takes the further step of building or purchasing new vessels to catch up with the growing trend. For now, it is scouting opportunities for investing in one or two new jack-ups and then a Tender Barge. Its ambition in the next five years is to increase the capacity of its fleet until it includes up to five jack-ups, one land-rig, one TAD and 1 Tender Barge.With a broad network of subsidiaries and joint venture companies, PV Drilling has accumulated the assets necessary to provide sustainable development and added value for clients. One significant event in 2011 was the establishment of PVD-Baker Hughes JV, the joint venture between PV Drilling and Baker Hughes, which is one of the best technical well service providers. The core business of this joint venture is providing high-tech services comprising directional drilling, well completion, fishing, MWD and LWD, coring, wire line logging, etc. In the first year of operation, PVD Baker Hughes JV has occupied almost 75 percent of Vietnam market. PV Drilling also has joint ventures with well-known foreign partners such as BJ Services, Expro International BV, Marubeni-Itochu Tubulars Asia, Oil StatesandVietubes, all of which contribute to the corporations total revenues and net profit.During the past few years, PV Drilling has considerably improved the effectiveness of risk management activities in all three aspects of corporate governance: business strategy, finance and operation. As an oil and gas firm, it developed a clear business strategy revolving around its core business drilling and drilling related services. Most of the companys major investments were put into building and purchasing onshore and offshore high-tech rigs,research and development activities to promote and apply advanced services, and upgrading machinery and equipment, as well as training human resources. The company now possesses a modern rig fleet, capable of adapting to the demand of drilling from shallow- to deep-water territories, and the capability to perform a diversified range of drilling-related activities.Surfacing as the primary concern in the industry during recent years, particularly after the oil spill catastrophe in Mexico Gulf, PV Drilling believes that health, safety and environmental issues are the most significant factors in the sustainable growth of every oil and gas company. Over the years, the company built up an HSEQ Integrated Management System (IMS), which is certified with ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007. Thanks to the serious awareness and strict compliance to safety practices of all PV Drilling staff, the company has maintained a remarkable health and safety record in all operations, receiving IADC-certification for five consecutive operational years without Lost Time Incidents (LTI) for PV Drilling I. The other two jack-up rigs have also achieved zero LTI since 2009.In order to keep the companys operations running smoothly, the allocation of funding in a timely manner is also a matter of great importance. To avoid risk due to unbalanced cash flows, PV Drilling implemented a close monitoring policy of all financial activities, particularly through a centralised treasury system designed to optimise cash flow and ensure capital is always available for operations and investment.The impact of other issues such as cost control, interest rate control and exchange rate fluctuation were all put under surveillance at management level to avoid having to deal with unexpected circumstances.Expansion plansBesides focusing on domestic operation to ensure national energy security is in compliance with the guidelines of Vietnam National Oil and Gas Group, PV Drilling also considers expansion to overseas markets as a significant target in the strategy of sustainable development. In fact, the past few years have seen the company make numerous efforts to take its services beyond Vietnam territory and, so far, the name PV Drilling has appeared in Malaysia, Indonesia, Myanmar, and Cambodia, and even in farther-fluing countries such as Mexico and Algeria. For instance, the land rig PVD 11 has been in Algeria since 2007, and currently operates safely and effectively under a three year contract for GBRS in HassiMessaoud. A representative office has just been set up in Kuala Lumpur, ready to launch the companys services into the Malaysian market and countries in Southeast Asia. There are further plans to spread the banner of PV Drilling farther and farther afield.PV Drillings efforts have seen World Finance award it the award for Best Oil and Gas Drilling Contractor in Asia, 2012. That should read as proof of the companys readiness to join the global playground, and PV Drilling is so already confronting new challenges and reaching for new heights on a global scale.4. DIVIDEND POLICYPV Drillings policy is Cash dividend, cash is paid directly to shareholders. Ordinary shares have a par value of VND 10,000. The Group has one class of ordinary shares which carry no right to fixed dividend. Common stocks shareholders will receive dividends at the time of declaration and be entitled for voting right for each owned share at the shareholders meeting. All shares rank equally with regard to the Groups residual assets.Dividends paid to shareholders during the year excluded an amount of VND 5,569,680,684 (2012: VND 5,287,333,596), representing dividends which declared, but has not yet been paid as at 31 December 2013. However, dividends paid to shareholders during the year include an amount of VND 5,287,333,596 (2012: 163,653,136) representing dividends declared in prior year that were paid in the current year.Pursuant to point b, Item No.2, Article 14, PV Drillings Charter assigning rights and duties of Shareholders General Meeting on determining annual dividend payment for each type of share in conformity with Enterprise Law and rights attached to each type.PV Drillings Board of Directors respectfully reports to Shareholders General Meeting voting for approval on dividend payment plan in 2013, profit attribution plan in 2014 and the Submission regards to 2013 stock dividend payment plan.Pursuant to Resolution No. 01/2013/NQ-HC dated 26th April, 2013, PV Drillings Board of Directors has been assigned by the Shareholders General meeting to determine on dividend payment plan in 2013 based on business performance, investment and financial condition of PV Drilling in this year. Accordingly, expected dividend payment in 2013 is approximately above 50% of profit attributable for dividend. 2013 has remarked impressive growth of PV Drillings business performance. In specific, revenue is VND 14,867 billion, has increased by VND 3,592 billion, equivalent to 32% vs. target approved by the Shareholders General meeting in 2013. Similarly, net profit after tax is VND 1,883 billion, exceeds the approved target by VND 523 billion, equivalent to 38%.Compromising between capital spent on investment in 2013, prepared for 2014 investment plan and sufficient cash flow ensuring sustainable development, PV Drilling expects dividend payment in 2013 at 30% on charter capital, in which 20% in form of cash and 10% in form of stock, equivalent to VND 827 billion. The retained earnings of this year of VND 419 billion is add on to accumulated retained earnings supporting PV Drillings business operations in 2014.5. CAPITAL STRUCTUREAlong with the increase in revenue and profit, in order to ensure the suitable growth in today competitive market economy, it is essential to set out an appropriate capital structure, as this will have a significant effect on the return on equity ratio and financial risks PV Drilling may face. To invest in modern drilling rigs and machinery, high technology equipment for business operations purpose, PV Drilling has mobilized maximum internal capital by increasing charter capital and raised outside capital by loans at the same time. In addition, PV Drillings Management has facilitated the Science and Technology Development Fund to create modern, innovative products and equipment, contributing to the increase of internal values to ensure PV Drilling sustainable development.

In 2013, PV Drilling successfully increased charter capital by issuance of shares, therefore capital structure of PV Drilling has changed compared to the previous period as the ratio of Liability and Equity to the Resources was 54% and 46% respectively.Charter capital rose from VND 2,105 billion to VND 2,755 billion through share issuances comprising of private placement to PetroVietnam and financial investors, employee stock ownership plan (ESOP) and share issuance to pay dividend of 2012. Among these issuances, the successful private placement of 38 million PVD shares brought over VND 1,450 billion in cash to PV Drilling and increased share premium by VND 1,050 billion. This inflow of cash played an important role in financing PV Drillings investment projects in new drilling rigs, equipment, machinery as well as capital contribution in PVD Overseas joint venture that reduced the Groups pressure of borrowings.PV Drilling is one of the Enterprises having the high level of market capital. The main source of capital is loan in USD. However, the high EPS proved that PV Drilling have use the capital efficiently and successful in managing capital and asset of shareholders.6. VALUATIONPV Drilling has achieved very outstanding results with very high dividend rates. Over the past five years, PV Drilling pays an average dividend higher than the market average. The below table reflects dividends paid for each year from 2008 to 2013.

Dividend Record

Finacial YearDividend(%)

200825,00

201020,00

201115,00

201210,00

201320,00

In the past years, while the economy faced difficulties, PV Drilling has sustained constant growth in revenue and profit and well-done tax obligation has increased on average 25% per year. In 2013, PV Drillings total tax payable to the State budget is over VND 2,400 billion, partially contributing to the overall economy. In addition, PV Drilling ranked in the top 50 out of 1,000 enterprises that make the larget contribution to the State bidget (VN1000), based on the independent evaluation and verification by the Vietnam Report joint stock company. Machinery were specified in operational strategies over the past years. This was the motivating factor to PV Drillings strong growth. Year 2013 marked an important milestone in the Corporations overseas expansion strategy, gradually realizing the Corporations vision of becoming an internationally reputation and reliable drilling contractor.To realize the vision, the management of PV Drilling has been concentrating on developing the following fundamental elements to make up the firm foundation for PV Drillings development, which consists of infrastructure and technology, human resource, and the management system.Along with the investment of advanced rig fleet including three premium, high-spec jack-up rigs, one land rig and one state-of-the-art TAD, PV Drilling has spent great effort to integrate a synchronized management system that was built upon the foundation of latest information technology. Some of the major modules are the inventory management system Maximo, the Reliability Centered Maintenance (RCM) Model, the application of ERP Oracle into activities includingfinance-accounting, human resource management, contracting and sale, planning and risk management.And the most significant factor that plays the vital role in the success and sustainable development of the Corporation is human resource. Throughout the past years, all of our staffs have been meticulously recruited and received necessary trainings to perform their required tasks in a proper way. Currently, our total headcount has increased up to over 2,000 employees, out of which there are about 1,000 technicians and engineers. Along with excellent skills and in-depth knowledge, our staff always demonstrates a great working spirit and strong determination to conquer challenges and reach for success.Focus on professional quality of human resources, investment instate-of-the-artdrilling rigsand international qualification of service standards are main attributors to successful brand name PV Drilling. As a result, during 2012 and 2013, PV Drilling has been consecutively awarded by WorldFinanceMagazine (UK) as The Best Drilling Contractor in Asia. PV Drilling also achieves the ASEAN Business Award for Large Enterprises in the Growth Category. Among the investors community, PV Drilling is evaluated as the transparent and sustainable company with top 3 in the Annual Report Award and Top 5 for Sustainable Report in 2012. With great credit in both drilling and financial market, PV Drilling commits to retain the best brand name in long run.PV Drilling (stock code: PVD) is not only well-known as an effective company but also high liquidity and attractive one to domestic and international investors, due to its professional IR & transparency. PV Drilling has acknowledged importance of transparency in sustainable development, as the result, management of the Corporation has been focusing on building up transparency both internal and external. The internal environment and management system based on ERP Oracle system has been finished Phase I and II into Accounting, Finance and HR units. Internal management system like this has enhanced transparency to facilitate collaboration, ensure operational capacity and increase management effectiveness. In 2013, PV Drilling continues to implement Phase III of ERP Oracle system into Business Intelligence and Budget Planning.After more than 7 years listed on HOSE, PV Drilling has become one of the leading blue-chip in the market, especially as a constituent in VN30. The Corporation has successfully built up credibility and attracted many local and international investors including individuals and big institutions. The main factor of that success is the Managements focus on developing and maintaining the relationship with shareholders. The Investor Relations (IR) Team, which is a part of Finance Division is responsible for transparency and timely information disclosure to shareholders and investors. With that mission, IR Team has become the effective connection and has been acting as information linkage between PV Drilling and shareholders, potential investors, authorities and other related parties. Therefore, investors can see and evaluate the intrinsic value of the Corporation and make wise investment decisions. Investors confidence and expectation on PVD ticker is also reflected through increasing PVDs market share price over the year. Besides disclosure activity, IR Team also support the shareholders to resolve the difficulties and questions related to the holding PVDs share and to work with the State Security Commission of Vietnam, Hochiminh City Stock Exchange and the Central Depository.According to an economic expert Investors in the stock market can make profit when either market rise or fall, but what they fear the most id the information opacity because they will not know what to do. Indeed, the transparency in business operations and the information disclosure of public companies play very important roles, especially for listed company on the Stock Exchange market like PV Drilling.During the past years, IR activities at PV Drilling have been intensified in building widespread information communication channels with investment community. In 2012-2013, PV Drilling welcomed more than 40 domestic and foreign funds/securities companies annually to visit the company to be introduced about development stages of PV Drilling, updated about business performance, financial performance as well as discuss about future direction and business strategy of PV Drilling. Investor Relations Team also develops communication channels through PV Drillings official website and reputable newspapers.PV Drilling has actively participated in conferences about business, finance, investment like East Asias Financial Stability Conference, Vietnam Access Conference, Vietnam Access Day Conference, CLSA Investment Conference, etc. Through these communication channels, PV Drilling has effectively, immediately updated material information, events to investors; simultaneously, recognized and avoided rumor to ensure rights and benefits of investors, enhance confidence of investors into PVD stock. Through these communication channels, PV Drilling has received supportive feedbacks from investors to adjust business strategy matching the market and improve management activities gearing towards sustainable development.IR team is also responsible for interim and infrequent information disclosure, for explanation to authorities like State Securities Commission of Vietnam (SSC), Ho Chi Minh Stock Exchange about changes in business performance Annually, PV Drilling discloses information through releasing Annual reports as required by law and PV Drilling has achieved important awards consecutively like Best Annual Reports in 2011, Top 3 Best Annual Reports 2012 and Top 3 Sustainable Report 2012. In 2012, PV Drilling was honourably awarded by SSC for attempts in information disclosure among listed companies.Furthermore, in order to ensure consistency in information disclosure between PV Drilling and the external, leaders of PV Drilling have implemented information disclosure procedure to manage information flow more effectively.Along with the growing tendency of the exploration and production activities in recent years, PV Drilling has made itself prepared and ready to integrate into the flow and catch up new opportunities. PV Drillings strategy is to build up a diversified rig fleet that could operate in both shallow and deep water regions, HPHT areas, and for the time being, 1 jack-up construction project has been on progress. Taking this chance, PV Drilling would like to convey a cooperation message to all investors and partners in building new modern rigs. As the demand for rigs is climbing up while a large number of old vessels are gradually eliminated from the market, this is the very advantageous time to make investment to acquire new rigs and stay ahead in the run of catching the market trend in the upcoming period.With a track-proven capability and excellent operational record of its whole rig fleet throughout the past years, together with the abundant source of infrastructure and manpower, PV Drilling believes to create more value added and considerably contributes to the success and development, not only of its clients, but of the ASEANs drilling industry as well. Do you think that the firm is correctly valued by the market? Why?Based on the whole analyst, theblue chip PVD is strongly recommended to buy because of: Strongbrandrecognition; Strongcorporatecultureandspirit; Largehumanresourcepoolandsupporting systems; Viablelong-termstrategybringsPVDtotherighttrack; Potentialindustry.In conclusion, in all circumstances, PVDs objectives are to achieve the best possible business result, ensure the best benefit for the investors and shareholders. When the stock market goes down, stock prices oflisted companies will not be able to avoid the downward trend which is reflected in the whole market. When consideringplans for of increasing stock issues, paying the dividends in stocks or cash, we would take into consideration their impact to the market price of the PVD stocks, in parallel with the objective of ensuring the development of PVDs business to increase the long term benefit for the investors. For PVD stocks, the current going-down price is objective.PVDs competitive advantage is based on advanced technologies, cutting edge drilling rigs and equipment, excellent technical staff, and a competent management system (PVD has employed the ERP management system). Additionally,PVDs management is very experienced in the international drilling service.PVD is currently holding a 10% share in Vietnams drilling market, an expansion to 30%-50% is surely possible for PVD during the coming 5-7 years. Therefore, it is believedthat PVD stock value will increase in coming time.

--------****--------