Research

The Uzbek electricity system, which was part of the former USSR electricity network, is somewhat similar to the current Ukrainian and the pre-reformed Russian electricity systems. Although the state is to privatize 15-25% of the stakes in most of the Uzbek electricity generators and distributors, so far all of them are entirely state-owned; that is, all except one. Bukhara Electric Gridlines is the only option available to portfolio investors, as 49% of the company is in private hands. The company provides electricity distribution to users of the Bukhara Region.

The OJSC “Uzbekcoal” has been operating as part of the structure of SJSC “Uzbekenergo” since 2001. Uzbekcoal is a monopolist in the coal mining sector, extracting resources for power stations using the open-pit mining method. The estimated stocks of coal in Uzbekistan is nearly 5.7-7 bln tons, while the country has explored only 1.9 bln of its resource capacities in this area. A state program aimed at modernizing the coal mining industry in Uzbekistan will deliver an increase in coal production that is almost four-fold.

The Open JSC ToshkentDonMahsulot (TDM) has been officially listed on the Tashkent Stock Exchange under category “B”. The decision was approved on September 22, 2008, bringing the total of all listed shares to 19. Among the other listed companies are 17 banks (category “A”) and one insurance company. This is the first representative of the food production sector in the official listing and in the entire production sector. A key requirement for listed companies is the disclosure of information, which will make the TDM more transparent and investor-friendly.

Uzmetcombinat is the only steel production enterprise in Central Asia, whose activity is highly supported by the Government of Uzbekistan. The plant has an approved Modernization Program for 2007-2011 that aims to potentially increase the enterprise’s level of steel production to an estimated figure of 750 thsd metric tons per year from its current level of 650 thsd metric tons per year.

Kizilkumcement has been operating for 30 years and currently holds the position as the biggest cement producer in Uzbekistan, having a capacity of 3.1 mln of dry method cement production annually, which is half of the total cement capacities in Uzbekistan. Nonetheless, with state backing, the enterprise participates in the program of modernization and technical/ technological re-equipment for the period 2007-2011, and is to increase its capacities to 4.8 mln tons by the end of the modernization program. Considering the infrastructure and construction prospects of the central Asian region, Kizilkumcement is among the top assets in which to invest in Uzbekistan.

Yuggazstroy is one of the largest oil and gas construction companies in Uzbekistan. Among the six construction companies within the Uzbekneftegas holding, Yuggazstroy has the largest number of employees, machinery and equipment. We are bullish about the Uzbek oil and gas sector, as well as about Uzbek oil and gas construction enterprises. Given that more projects in Uzbek oil and gas sector will develop, Yuggazstroy will be among those to benefit.

Tashneftegazstroy is one of the largest oil and gas construction companies of the national oil and gas holding Uzbekneftegas, with pipelines construction as its core activity. Most of Tashneftegazstroy’s services are provided for the Uzbek oil and gas sector; however, the company is also involved in residential property construction and provides transportation services. In light of the forthcoming gas pipeline projects, and especially the gas pipeline projects from the Caspian region to China and India, Tashneftegazstroy is considered to be a very promising business.

Most leading Ukrainian pharmaceutical companies are outperforming the quickly growing market and obtaining market share, successfully competing with large foreign players. While international pharmaceutical producers own the market in value terms (78%), local ones own it in volume terms (61%), due to their lower price segment specialization. However, we expect local producers’ share to increase owing to a shift to the higher price segment and government support. The ability to produce more expensive drugs is supported by GMP certification and outstanding local R&D potential.

Earlier this week the ESGroup hosted a conference with all the major players in the agricultural sector of Ukraine’s economy. Among the participants were Anatoly Kinakh, the President of the Ukrainian Union of Manufacturers and Entrepreneurs, and Yuriy Luzana, the Deputy Minister of Agriculture.

At the October 25 AGM, Azovstal’s shareholders will decide on dividends for 2002–2007 (maximum USD 0.264 per share, 124% yield). Azovstal has got some cash and, more importantly, the balls — the grinding ones, for supplies of which, together with other steel products, Azovstal can collect from its currently highly profitable ore-mining Metinvest Group partners. The wild card is Azovstal’s huge accounts receivable due from the Group’s traders (USD 0.211 per share, 100% yield), which are much less liquid assets under the current difficult conditions on the steel markets. Whether Metinvest has got the balls to actually declare dividends, and how much, remain open questions for ballsy investors to bet on.