Research

Kharkiv Machine Building Plant Svitlo Shakhtarya is one of the largest CIS producers of scrape conveyors used in coal mining.

The June 06 AGM of Zaporizhstal detailed modernization plans and introduced corporate governance changes consistent with both more transparent functioning and takeover preparations. Both would be highly positive.

The Ukrainian beer market expanded 18% in terms of output in 2007. Taking into account the low beer consumption per capita (61 lt) compared to average European (90 lt), we see the potential for growth on the Ukrainian beer market and are initiating coverage of two traded breweries, Sun InBev Ukraine [SUNI] and Slavutych [SLAV]. We believe that SUNI‘s excellent corporate governance standards and strong fundamentals will be key growth factors for SUNI’s market price. Moreover SLAV sustained earnings’ recovery lead us to believe, that SLAV is undervalued. We issue BUY recommendations for both stocks with a fair price of USD 0.945 for SLAV and a fair price of USD 0.14 for SUNI.

On April 10, Zaporizhstal signed a contract with Siemens VAI for construction of a USD 1.7 bln, 5.5 mln mt oxygen converter, continuous casting complex. Until recently, it was not clear how the company would finance this CapEx program, especially in light of persisting transfer pricing. But on May 12, it was announced that Citigroup was syndicating a USD 250 mln, LIBOR+2.5% credit for Zaporizhstal. We believe that both implementation of the CapEx program and an eventual abolition of transfer pricing have just become real. By 2012, Zaporizhstal will become much younger, modern an ISW, and will continue to be a ripe takeover target all along. For years, the company has been an outsider in both modernization and corporate governance. Now, Zaporizhstal is on a brink of huge changes not many have believed in. Largest value usually is found in such situations.

Income = Volumes * Prices * Margins. All three right hand side terms are favorable for Avdiivka Coke: in 2008, we forecast a volume increase of 35%, price hike of 74%, and strong margins.

On June 06, Metinvest Holding will likely hold its annual press conference. We expect good news to be presented, and markets to react. There is a only a week left for buying promising Metinvest Group members before their likely appreciation after the press conference.

On May 30, a Metinvest Holding official announced that the Group will supply 600 thsd mt of skelp and pipes for Central Asia – China natural gas pipeline. We affirm positive Azovstal expectations and consider possibilities regarding future of Khartsyzsk Tube Works.

The Ukrainian currency was pegged to the U.S. dollar for eight years. Now, it seems things are about to change. Significant misbalances within the current account and financial account, as well as shifts in the National Bank’s monetary policy soar the risk of UAH instability in the future. If politics would were sidelined, the hryvnya should stay strong within the next 12 months, with a high chance of slight devaluation to follow. However, the alternative scenario implies more flexibility of the hryvnya in the future, given commodities will continue appreciating, the U.S. dollar falling and the Ukrainian central bank switching to inflation targeting.

The diarchy in the State Property Fund (SPF), created by the confrontation between the president and the prime minister, created grounds to question the legitimacy of the privatization that made Energy Standard group, one of the rival shareholders in 5 out of 6 oblenergos, refuse to participate until the government clears all political and judicial issues tied to privatization.

Prydniprovsk Dairy Plant is a Ukrainian independent dairy producer with its own distribution chain. It processes 200 mt of milk daily. The company has a diversified product portfolio exposed to the high marginal baby food segment and unsaturated market niche of high value-added products. It had a stable sales growth at 10% CAGR in 2003-2006. We recommend BUYing with a fair price of USD 21.1. The company is not listed on the PFTS and traded over the counter.