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HRTR output volume relatively high in Sep: POSITIVE
Khartsyzk Pipes & Tubes [HRTR UZ, N/R] produced 39.2 thsd mt of pipes in September, bringing the 9M08 total to 235 thsd mt, down 46% YoY. The September production volume is 60% higher than the 8M08 monthly average (24.5 thsd mt), and only 8% below the 2007 monthly average (42.4 thsd mt).
Khartsyzk Pipes & Tubes is a member of the MetInvest Group, 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 have a 25%+1 stake in Metinvest Group business.
Our view:
The average monthly production volume for 3Q08 was 34.6 thsd mt. If Khartsyzk Pipes & Tubes continues working at that pace in 4Q08, it will produce about 340 thsd mt of pipes in 2008, down 33% YoY. Although the September results are POSITIVE after many months of lower volumes, only large multi-month, high-volume contracts, such as for supplying the Central Asia - China pipeline, will salvage the long-term prospects of the company, which worsened substantially after losing the Russian market.
Astarta’s releases strategic plans: POSITIVE
Astarta [AST PW, BUY], a vertically integrated agricultural holding, is going to build silo facilities with a total storage capacity of 0.2-0.25 mln mt of grain by the end of 2011. According to Viktor Ivanchyk, the CEO of the Astarta holding, the company is going to invest an overall amount of USD 40-50 mln in order to fulfill its management plans.
The silo facilities will be build in those regions where the company’s agricultural business is concentrated the most. In particular, these include the Poltava Region ( 3 silos), Khmelnitsky Region (1 silo), and Vinnitsa Region (1 silo). Moreover, Mr. Ivanchk has mentioned the possibility of building a grain terminal in one of Ukraine’s seaports.
Mr. Ivanchyk stated that Astarta is going to further develop its sugar business and to invest funds into the modernization of its sugar plants at a total of USD 50-60 mln, which is to be done by the end of 2012.
Our view:
Ukraine is currently experiencing the biggest harvest since 1990. The issue of the crop’s storage, which faces almost all agricultural companies regardless of the size of these businesses, has drawn not only government attention, but also the attention of big agricultural holdings. Earlier, Kernel [KER PW, U/R] also stated plans to increase its silo facility and to modernize existing facilities.
We believe that Astarta’s plans to build its own silo facilities are POSITIVE, since this move will not only decrease its operational costs, but will also provide the company with additional earnings from providing storage facilities to other smaller businesses.
Regarding plans for modernizing the company’s sugar plants, we believe that the company will be able to increase its total output capacity by 25-30%.
AZOVMASH - battle for controlling stake persists: NEGATIVE
The State Property Fund (SPF) of Ukraine has announced the illegitimacy of the decision made earlier by Ukraine’s Cabinet of Ministers about transferring the controlling stake in AZOVMASH to the Cabinet of Ministers. The SPF also announced that, by April 2009, it is going to sell its share in the company Mariupol Heavy Machinery [MZVM UZ, BUY], which is equal to 11% of the company’s total stock. AZOVMASH owns a 50% stake in Mariupol Heavy Machinery.
Additionally, the Cabinet of Ministers approved the decision that the SPF must co-ordinate decisions with the Cabinet of Ministers about the reorganization of any legal entities in which the SPF has a greater than 50% stake in the charter fund. This happens to be the very case for AZOVMASH.
Our view:
Here, we witness the further development of a corporate conflict concerning AZOVMASH. It is most probable that, through the SPF and its share in AZOVMASH’s overall stock, A. Savchuk (the President of AZOVMASH) aims to gain total control of Mariupol Heavy Machinery for its further consolidation in the railcar machinery holding.
However, on the other side, some other parties want to gain a blocking stake in the company by acting through Prime Minister Tymoshenko with the most probable aim of selling it to Savchuk later, but for a higher price that may be obtained from the SPF.
We see this corporate conflict as NEGATIVE for AZOVMASH and the companies that are controlled by it, especially Mariupol Heavy Machinery.
New Radio Frequencies Awarded to GSM Operators: MIXED
The National Communication Regulation Commission (NCRC) of Ukraine has announced its decision to award four new licenses for the use of additional radio-frequency bands in the range of 900 MHz.
The four recipient companies, each of which is based in Kyiv and is already active in the mobile phone segment of the telecommunications sector, operate according to the GSM standard. They are Kyivstar GSM, Ukrainian Mobile Communications (UMC), Ukrainian Radio Systems (URS, under the ‘Beeline’ brand), and the Open Joint-Stock Company Astelit Ltd. (under the life:) brand).
As reported earlier by Sokrat, the subscriber bases for these companies, based on data from the end of August 2008, is as follows: Kyivstar GSM at 23.46 mln, Ukrainian Mobile Communications (UMC) at 18.598 mln, Astelit Ltd. at 10.58 mln, and Ukrainian Radio Systems (Beeline trademark, URS) at 2.366 mln.
Our view:
We interpret this news as being POSITIVE for the development of the above-mentioned companies. At the same time, we view this development as NEGATIVE for Ukraine’s incumbent fixed line operator Ukrtelecom [UTEL, U/R], as the company will now be subject to increased market competition by more affordable GSM Standard operators, each of which already maintain a fair share of the local market. While the market share of all four of these mobile phone providers far surpasses that of UTEL, the expansion of their GSM-based capacities may help them to improve services and build their clientele, who might otherwise be enticed to switch to the more contemporary 3G services offered by UTEL.
The OJSC Ukrtelecom, the only company in Ukraine to have received a 3G license, began providing 3G mobile communications services under the ‘Utel’ trademark in November 2007. As of the end of August 2008, it had 45,600 subscribers last month, representing a rise of 11,500 subscribers or 33.72% from July. This company cannot hold its monopoly forever, however, and there exists the possibility that other 3G operators will also enter this market within the next half-year, presenting UTEL with additional direct competition. Considering that each potential 3G competitor must first receive a license for 3G operations, which is foreseen to be problematic in the short term, UTEL can, in the meantime, use its privileged market status to offer its services to those clients interested in advanced mobile services.
At present, Ukrtelecom controls 78.5% of the fixed line telecommunications market in the country and has more than 10.1 mln clients. Ukrtelecom securities remain attractive to investors due to the enduring hope that this telecommunications giant will eventually be privatized in 2009. At present, 92.79% of Ukrtelecom is owned by the state, with the other 7.14% having been sold to the company’s staff members. We currently have this stock Under Review and will keep investors posted as to important developments concerning this company as they arise.
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