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Ukraine’s Slate Cement Production Rises 6.3% for August: POSITIVE
Information released by the State Statistics Committee of Ukraine (Goskomstat) reveals that the cement production of slate has increased 6.3% to reach 63.8 mln tiles in August 2008, compared with output for August 2007. For the purposes of this calculation, slate includes corrugated plates, slate and other asbestos cement products.
As reported by Ukrainian News, slate production for August rose by 2.2% in August compared with July. July’s production of slate rose by 12.0% to 62.4 mln tiles relative to the previous month’s output.
For the period January-August, the production of slate fell by 0.2% to 336 mln tiles, compared with the same period in 2007. In 2007, slate production fell by 15.4% to 633 mln tiles in comparison with figures for 2006.
The largest producers of slate in Ukraine are as follows: Ivano-Frankivskcement [IVFC UZ, U/R]; Volyn-Cement [VOLC UZ, BUY]; and the Balcem Plant. Two of these companies – Ivano-Frankivskcement and Volyn-Cement – have stock for sale on the PFTS, while the Balcem Plant is not publicly listed at this time.
Ivano-Frankivskcement is the top cement producer in Ukraine and is privately held, with Mykola Kruts having a 36.6% stake in the company. Balcem Cement belongs to the JSC “Eurocement Group Ukraine”, an affiliated company of the large Russian holding company “Eurocement Group”.
Volyn-Cement is 94.82% owned by Dyckerhoff Zement International – one of the top three cement producers in Ukraine – which also holds a controlling stake in the Ukrainian company Yugcement and operates cement plants in another 19 different countries.
Our view: The rise in output for August is good for Ukrainian slate producers in general and particularly, for the three companies holding the largest production: Ivano-Frankivskcement [IVFC UZ, U/R]; Volyn-Cement [VOLC UZ, BUY]; and the Balcem Plant.
August’s production increase for slate has occurred in reaction to the seasonal increased demand on the market, with higher production levels and prices stimulating growth in the net sales and revenues for slate-producing companies and positively impacting on their respective margins.
As is clear from results published by “Ukrainian Export-Import Statistics”, the demand for these companies’ products is strong – not only domestically, but also in neighboring markets. Specifically, their data indicates that both IVFC and VOLC are among the top four Ukrainian cement exporters for the period January-August 2008. They ranked second and fourth, respectively, with competitors Doncement and Eurocement (to which Balcem Cement belongs) occupying first and third places. However we see some negative moments on the local real estate market due to developers’ liquidity problems and a slowdown in the volume of construction in Ukraine. This may be a signal of decreasing local demand for cement production in the short-term and even mid-term.
While we are currently in the process of reviewing the prospects of Ivano-Frankivskcement, we put forward a favorable forecast in terms of the future development of Volyn-Cement. While we assume that VOLC’s output will stay at the same level as in 2007, we expect that the company's financial results in 2H2008 will still be high. We recommend BUYing shares in Volyn-Cement, with a target price of USD 33.1.
New contract for AZOVMASH: POSITIVE
AZOVMASH intends to deliver a converter with a capacity of 140 metric tons to the metallurgical company "Dunafer" by 2010.
Dunafer is a Hungary-based enterprise. Its metal plant in Dunauyvarosh is already using converters produced by AZOVMASH, which means that this company is a repeat client.
Our view: In spite of the political situation of a 50%+1 stake in AZOVMASH recently being transferred from Ukraine’s State Property Fund to the country’s Cabinet of Ministers – a development which may have negative impact on the company – AZOVMASH is showing strong operating results and is successfully filling its order book.
Kernel to double its oil processing facilities before 2010: POSITIVE
The Kernel Group [KER PW, U/R], one of the country’s leading bulk oil and grain trading companies with vertically-integrated assets, has announced its plans to finish building its fourth oil processing plant. Located in the Nikolayev Region, this plant has a processing capacity of 510 thsd mt p.a., which, taking into account all of the Group’s oil processing facilities, will double the capacity of Kernel.
The group announced its planes to process an overall of 825 thsd mt of seeds in 2009 and increase sea export by 63% to 279 thsd mt of oil, including 229 thsd mt of bulk oil and 50 thsd mt of refined oil in 2008/09 marketing year. Moreover the management of the company estimates a 27% increase of bottled oil to 131 mln lt.
Our view: Kernel [KER PW, U/R] is the largest producer of bottled oil in Ukraine, with a market share of 35%. The company operates three sunflower seed crushing facilities (with a total capacity of 0.73 mln mt p. a.), which implies approximately 17% of the total processed sunflower seeds in Ukraine.
Kernel currently leases 84.5 thsd ha of land and aims to reach 250 thsd ha by the end of 2010, which would translate to a three-fold increase in its land bank. Such a strategy helps the company to ease cost pressures on its margins by decreasing its external grain purchases.
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