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Kyivmedpreparat EGM to vote on another SCI
According to Interfax-Ukraine, shareholders of Kyivmedpreparat [KMED UZ, U/R] will vote on a share capital increase at a September 30 EGM. The current plan calls for placing (with existing shareholders only) 4 mln new shares at a face value of UAH 25 (USD 5.43 at USD/UAH 4.6020) during the period December 09-25. As a result of the offering, which should fetch USD 21.7 mln, the number of shares outstanding will increase 2 times, to 8 mln. The ex-rights date will supposedly be December 09, 2008.
Kyivmedpreparat is a leading Ukrainian pharmaceutical producer and a member of the Arterium Corporation.
Our view:
Shareholders should participate in the offering and prepare meticulously their documents in order to avoid being diluted, as was the case with some minorities in relation to the last SCI conducted in December 2007.
More details on Azovstal’s new concaster No. 6
Azovstal [AZST UZ, U/R] is tuning up its new 2.5 mln tpa concaster No. 6, constructed within the realms of a 2003-2008 USD 826 mln CapEx program. According to Metal Courier, a metallurgy and mining marketing and research agency, in June, the first month of its service, concaster No. 6 produced 40-50 thsd mt of slabs, and in July they increased to 100-110 thsd mt. Most of the slabs were sold; some were rolled further on Azovstal’s own Mill 3600. The design capacity, about 210 thsd tpm, is planned to be achieved in the beginning of 2009.
Metal Courier underlined that Azovstal’s overall slab production volumes have not increased due to the June launch of concaster No. 6. In particular, the launch has already allowed for conducting repairs at concaster No. 3 (1.4 mln tpa), and it is planned to repair concaster No. 5 (1.5 mln tpa).
Azovstal is the third-largest Ukrainian steelmaker and a member of the Metinvest Group. In 2007, the company smelted 6.33 mln mt of steel, achieving net sales of USD 3.243 bln, EBITDA of USD 631 mln, and a net income of USD 420 mln. The MetInvest Group is an assembly of the metallurgical and mining assets belonging to Rinat Akhmetov, which is strategically directed by Metinvest Holding LLC. Vadim Novinskiy and his Smart Holding also have a 25%+1 stake in the Metinvest Group business.
Our view:
POSITIVE. Azovstal is getting better in construction and mastering new machines, which is crucial for the company’s capacity expansion and efficiency improvement.
Malyn Paper Factory increases output by 24%: POSITIVE
The Malyn Paper Mill (MPM), the only Ukrainian producer of electrical insulating cardboard for power devices, increased its output of paper by 23.9% in January-July YoY, up to 7.52 thsd tons. Also, during the same period the company increased the output of cardboard by 11% YoY, up to 3.45 thsd tons.
The MPM’s major type of output is backing paper for wallpapers; besides, the mill has recently launched the output of filtering cardboards for champagne, beer and nonalcoholic drinks’ filtration. 94.6% of the company’s shares are owned by the Swiss corporation “Wicor Holding AG”.
Our view:
The company’s growing production output is ensured by the stable demand for its products, as well as by its high technical parameters. The company’s net sales have grown from USD 23 mln in 2006 to USD 31 mln in 2007 and are expected to top USD 45 mln in 2008. At the moment, the company’s shares have not yet been listed on the PFTS stock exchange; however, we do not dismiss such a possibility from occurring in the future.
Sokrat Research: Dnipropetrovsk Steelworks n.a. Babushkin
Dnipropetrovsk Steelworks n.a. Babushkin [DZMK, Strong BUY] is one of the largest producers of steelwork for non-residential construction, heavy industry, bridge construction, and the electricity sector in Ukraine. The company specializes on difficult custom-executed orders of high expertise demand. DZMK is supplying its products well beyond the Ukrainian market including markets in Asia, the Far East, Africa, and Russia. Although it is not completely vertically integrated, the company is part of the Industrial Union of Donbas (IUD), one of the three largest industrial groups of Ukraine.
• DZMK is the leading company of the Ukrsteelconstruction group, which accounts for more than 40% of Ukraine’s structural steelwork market. DZMK’s recent and current projects include a terminal at the Vnukovo airport in Moscow, Russia, production facilities at Alchevsk ISW [ALMK] and Azovstal ISW [AZST], logistics warehouses and retail shopping malls in Kyiv and Dnipropetrovsk. In 2008, DZMK will deliver steelwork for the construction of the Hilton Hotel in Kyiv.
• Short term growth drivers for DZMK: Firstly, infrastructural development in Ukraine, supported by EURO 2012 preparations, is fueled by increasing transportation services, which includes bridge and road construction. Secondly, the growing Ukrainian industrial output creates the demand for steelwork construction products used in building new plants, factories and other industrial ancillary products.
• The long-term growth driver lies in shifting from heavy industry orders to residential and commercial construction, which is expected to grow 35-40% annually over the next three years. Steelwork for high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, and hospitals is rising in demand.
• DZMK is well positioned to overcome the credit squeeze which has spread world-wide and has negatively affected primary construction in many European countries. Although the company is actively operating in the commercial construction of hotels, retail shopping malls and logistics warehouses, currently the bulk share of its output goes to the industrial sector.
• The Industrial Union of Donbas is currently holding talks on selling part of its assets to the Russian Evraz group. A DZMK merger with Evraz may expand the company’s market, as well as ensure a reliable supply of raw materials.
• In our DCF valuation we included conservative long term steel prices forecast reaching USD 1,200 per mtn only by 2015 and a moderate 15% to 20% growth of the steelwork construction until 2012. We value DZMK at USD 1.16 per share and recommend BUYing with an upside of 223%.
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