|
Ukraine real GDP grows
The State Statistics Committee of Ukraine has announced that real GDP in January-September 2008 grew 6.9% YoY. At the same time, real GDP in September 2008 grew 5.5% YoY after a 10.9% YoY growth in August. The earlier-released figures for January-August 2008 announced 7.1% YoY growth.
The biggest growth of value added in the period January-September 2008 occurred in agriculture (15.7%), transport (10.4%), and trade (9.4%).
Real GDP growth in 2007 reached 7.6% and, in 2006, was 7.3%.
The government expects 6.8% growth in 2008.
Our view:
We view a 6.9% GDP increase in January-September 2008 as a very good result demonstrated by the Ukrainian economy, especially given the high inflation (26.2% CPI growth YoY) over this period. As Sokrat forecasted last month, this year’s good harvest is a main driver of GDP growth in January-September, despite a MoM industrial output fall of 4.1% in September.
While we expect lower inflation and moderate industrial output growth in 2H08, we anticipate that by the end of 2008, Ukrainian real GDP will reach 6.5% of the growth forecasted by us earlier. Industrial output growth, driven by high commodity prices in 1H08, will be the main driving force behind the growing GDP. Moreover, the record crop harvest in 2008 will, overall, be a GDP growth supporting factor.
PFTS Changes Index Basket & Calculation Methodology
The PFTS Index Committee has approved changes to the PFTS index basket and a new methodology for calculating the index basket. These changes will come into effect as of October 15 and October 13 respectively. Among the newly-introduced changes were the addition of Kryukiv Railcar [KVBZ UZ, BUY] and Alchevsk Iron & Steel [ALMK UZ, U/R] to the PFTS basket, and the removal of Donbasenergo [DOEN UZ, BUY] and Luhanskteplovoz [LTPL, N/R]. The PFTS also temporarily excluded Poltava Iron Ore [PGOK UZ, U/R] from the basket, pending approval from the State Securities and Exchange Commission for the company’s additional share issue of September 23.
The PFTS Index Committee also took a ruling that the share of an individual stock in the basket’s total capitalization would not exceed 15%.
The PFTS said that on October 10 it approved a new methodology for calculating the PFTS index. Replacing the old method of computation, index figures will now be calculated in real time and will be determined using the weighted average price of the most recent three transactions for any given stock. This will most probably begin implementation as of November.
Our view:
We view this development as being positive and the changes introduced will provide the PFTS index basket to include more liquidity and less inclination towards the utilities sector compared to the previous stocks set used in calculations.
Soon, the PFTS index will be less influenced by utilities-oriented stocks (thanks to the removal of Donbasenergo from the basket); nevertheless, there is still room for improvement with respect to the composition of the index basket, since this change only reduces the utilities sector’s share in the basket from 43% to approximately 35%, compared to the 15% that is accounted for by total free float utilities on the PFTS.
As well, these alterations mean that the PFTS index basket will now encompass Kryukiv Railcar, which is has relatively greater liquidity than Luhanskteplovoz, one of the two stocks removed.
Despite these positive adjustments, the index basket still fails to contain any stocks associated with real estate or retail and consumer goods sectors.
Dyckerhoff Zement’s Ukraine Output Up 8.6%: POSITIVE
According to statistics reported by the Interfax-Ukraine news agency, Ukrainian enterprises belonging to the Dyckerhoff Zement Group increased production for the period January-August 2008 by 8.6%, compared to the same period in 2007. The total production for this period was 1,845 mln metric tons
For this eight month period, Ukrainian cement plants affiliated with Dyckerhoff Zement (Germany) increased cement production as follows: The Joint Stock Company ‘Yugcement’ rose 14.8% to 783.3 metric tons, while the Open JSC ‘Volyn-Cement’ [VOLC UZ, BUY] saw an increase of 4.5% to a level of 1.062 bln metric tons.
In just August of this year, Yugcement increased production by 14.1% to 105.5 metric tons, while Volyn-Cement’s output fell 0.8% to 136 thsd metric tons. Yugcement’s productive capacity is estimated at 1.25 mln metric tons annually.
According to the Ukrtsement Association, its member companies in 2007 increased cement production at a rate of 7.3% to 11.765 bln metric tons. Data from the State Statistics Committee, however, reflect that Ukrainian cement plants increased cement production in 2007 by 9.3% up to 14.995 bln metric tons, compared with the output for 2006. Among these, factories affiliated with Dyckerhoff Zement recorded an increase in their 2007 cement production at 12.9% YoY from 2006, reaching an output of roughly 2.6 mln tons. Volyn-Cement produced 1.5 mln metric tons of this total and utilized 75% of its 2 mln metric tons per year capacity.
Yugcement is based in Olshanskoe, Mykolayiv Region, while Volyn-Cement operates in Zdolbuniv, Rivne Region. Dyckerhoff has a 94.82% stake in Volyn-Cement. Apart from Ukraine, Dyckerhoff Zement International GmbH includes cement plants in 19 other countries around the world. It also owns Kyivcement, which specialized in the bagging and distribution of cement. The company’s two plants, when combined, account for about 17.2% of the cement market in Ukraine (Please see today’s related news piece on Ukraine’s slate cement production for September).
Our view:
This is POSITIVE news for Ukrainian cement producers in general and Volyn-Cement specifically, since the production increase for cement occurred in reaction to a steadily rising demand on the market. Higher production levels and cement prices have caused growth in the company`s revenue; however, we need to be cautious since we are now witnessing 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 Ukrainian cement production in the short-term and even mid-term. We think that cement output will decrease in 4Q2008 but that the annual results will be higher compared to the same period in 2007.
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 expect the company to spend nearly USD 310 mln on VOLC`s technology modernization from the wet to dry method of cement production, which will allow it to increase net sales by 43.3% to 2.2 mln metric tons and to decrease production costs by 10% per unit by 2011. At the end of 2008, and when the modernization program finishes in 2011, output will increase to 1.6 mln metric tons in 2009 and 1.92 mln metric tons in 2010. According to our estimates, VOLC will invest USD 46 mln in 2008 in the transition from gas to coal in the production process, which will effectively decrease production costs by 5% per unit upon the program ending at the beginning of 2009.
We recommend BUYing shares in Volyn-Cement, with a target price of USD 33.1.
Slate Cement Production Rises 2.1% for September: POSITIVE
Information released by the State Statistics Committee of Ukraine (Goskomstat) reveals that, in September 2008, the cement production of slate cement increased 2.1% to reach 62.3 mln tiles, compared with output for September 2007. For the purposes of this calculation, slate includes corrugated plates, slate and other asbestos cement products.
September’s slate cement production fell by 2.4% in September, compared with August, in which month the company achieved a production level of 63.8 mln tiles – an increase of 6.3% from the same month in 2007.
In the period January-September, production of slate rose by 0.1% to 462 million tiles, compared with the first nine months of 2007.
As Sokrat earlier reported, slate production in August 2008 rose by 6.3% to 63.8 million tiles, compared to the output for August 2007. In 2007, slate production fell by 15.4% to 633 million tiles to 633 million tiles, compared with 2006.
The largest producers of slate cement in Ukraine are as follows: Ivano-Frankivskcement [IVFC UZ, U/R]; Volyn-Cement [VOLC UZ, BUY], based in Zdolbuniv, Rivne Region; and the Balcem Plant, which is based in Balakliya, Kharkiv Region. Two of these companies – namely Ivano-Frankivskcement and Volyn-Cement – sell their stock on the PFTS, while the Balcem Plant is not publicly listed at this time.
Ivano-Frankivskcement is the second top cement producer in Ukraine and is primarily privately held, with Mykola Kruts having a 36.6% stake in the company. Balcem Cement belongs to the JSC “Eurocement Group Ukraine”, which is owned by owned by the Galaks Holdings Limited of Cyprus, an affiliated company of the large Russian holding company “Eurocement Group”. The company also includes the Kramatorsk ‘Pushka’ Cement Plant [KRCS UZ, BUY].
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 (Please see today’s related news piece on Dyckerhoff Zement’s Ukraine production levels for September).
Our view:
The rise in output for September YoY is good for Ukrainian slate producers in general and particularly, for the three companies holding the largest production: Ivano-Frankivskcement; Volyn-Cement; and the Balcem Plant.
Despite the continuing stable demand for these companies’ products on the market – both domestically and in neighboring markets – we are now witnessing 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 Ukrainian cement production in the short-term and even mid-term. We think that cement output will decrease in 4Q2008 but that the annual results will be higher compared to the same period in 2007. In the long term, we think that local demand will increase due to EURO 2012 preparation and we will see a rebound in the volume of construction in Ukraine.
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 and the Balcem Company. 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.
Bank Forum Posts 87% Profits for Jan-Sep: MIXED
For the first three quarters of 2008, Ukraine’s Bank Forum [FORM UZ, N/R] has reported an increase in net profits by 87.5% on the year to UAH 68.9 mln (equivalent to USD 13.43 mln or EUR 9.83 mln).
As at October 1, 2008, Bank Forum had UAH 16.54 bln in assets. For January to September, the bank`s credit portfolio was valued at UAH 12.366 bln and its reserves accounted for UAH 444.6 mln.
Earlier this year, on March 5, the German banking group Commerzbank AG [CBK FSE, N/R] acquired a stake of 60% plus one share in this Kyiv-based Forum Bank for which it paid EUR 435 mln ( equivalent to USD 594.5 mln). In doing so, it also secured the option to further raise its stake by 25% after 36 months.
On September 23, Bank Forum announced plans to expand its network by 30 outlets to 350 units by the end of 2008. Since the beginning of the year, it has launched 19 branches and offices across the country. It also has representative offices in the Czech Republic and Kazakhstan.
Three days later, on September 26, 2008, the international rating agency Fitch Ratings dowgraded its outlook on the long-term issuer default ratings (IDR) from “stable” to “negative” for Bank Forum and nine other Ukrainian banks and affirmed its rating at the level of BB-.
Our view:
The financial figures reported yesterday by Bank Forum are clearly POSITIVE for Forum Bank.
The downgrade made by Fitch Ratings was NEGATIVE, consequentially decreasing the bank’s ability to receive foreign loans. We see that all Ukrainian banks are now finding themselves in the same situation, having had their ability to acquire external credit essentially closed to them. In spite of this, we believe that Commerzbank AG will provide for borrowings in the volumes that are required. In the current situation, Bank Forum is in advantageous position compared to Ukrainian banks with domestic capital, since it has enough funds to continue its’ day-today operations and lending. We also think that the National Bank of Ukraine (NBU) can support Bank Forum in the case that it is necessary, but we suppose that Bank Forum can manage the situation with liquidity.
|
|
