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Ukrainian Equity Market: Weekly Overview 25 - 29 October, 2010

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Ukrainian Equity Market: Weekly Overview 25 - 29 October, 2010 2A Republikas square, Riga, Latvia, LV-1010 Lidiya Mudra, Tel. +371 67010810, Fax +371 67778622 Financial Analyst www.citadeleam.lv [email protected] UX index added 2% during the week UX Index 2300 UX Motor Sich reports strong 3Q10 and 9m10 results last week: 2100 Luhanskteplovoz narrows its net loss to UAH 20.8m in +2.00% 9m10 1900 Ukrnafta substantially improves its financial results 29-Oct-10: 1,869.54 1700 Ukrtelecom ends 3Q10 with a loss Jul Aug Sep Oct Ukraine’s C/A gap narrows to $256m in September Last week the Ukrainian equity market witnessed a turning point in its negative trend. Based upon the results of five sessions Ukraine’s benchmark - the UX index - added 2%, trimming its monthly decline to 4.47%. In the machine-building sector, Motor Sich reported 3Q10 net sales of UAH 1.25b (+28.2% q/q and +1.9% y/y), EBITDA of UAH 432.6m (+42.5% q/q and +0.4% y/y) and net income of UAH 284.3m (+30.1% q/q and +8.1% y/y), thus posting EBITDA and net margins of a respective 34.7% (+4.8pp q/q but -0.5pp y/y) and 22.8% (+1.3pp q/q and +1.3pp y/y) and bringing its 9m10 net sales to UAH 3.23b (+29.4% y/y), EBITDA to UAH 1.02b (+24.9% y/y) and net earnings to UAH 0.71b (+37.1% y/y). Luhanskteplovoz issued 3Q10 financial results, posting net sales of UAH 334.2m (+64.5% q/q and +395% y/y), EBITDA of UAH 28.4m (vs. UAH 2.6m in 2Q10 and -UAH 16.4m in 3Q09) and net income of UAH 6.5m (vs. UAH 8m in 2Q10 and -UAH 46.5m in 3Q09). In 9m10, the company’s net sales grew by 28% y/y to UAH 543.1m, its EBITDA was positive at UAH 11.3m (vs. -UAH 35.2m in 9m09) and its net loss narrowed to UAH 20.8m (vs. -UAH122m in 9m09). In the related news, the Kyiv Economic Court cancelled the contract for the sale of a 76% stake in Luhanskteplovoz between the State Property Fund of Ukraine and Russian Bryansk Engineering Plant. In addition, the Court demanded that the Russian company pay a penalty of UAH 82m and a surcharge of UAH 2.2m because it didn’t pay for Luhanskteplovoz. In the oil & gas sector, Ukrnafta reported impressive financial results for 3Q10, posting net sales of UAH 6.25b (+54% q/q and +87.7% y/y), EBITDA of UAH 1.5b (+33.4% q/q and +249.8% y/y) and net income of UAH 0.98b (+6.7% q/q and +345.5% y/y). The results imply an EBITDA margin of 24.0% (-3.7pp q/q but +11.1pp y/y) and net margin of 15.6% (-6.9pp q/q but +9.0pp y/y). The company’s 9m10 net sales boosted by 124.1% y/y to UAH 13.61b, its EBITDA increased by more than 11 times y/y to UAH 3.56b and its net earnings reached UAH 2.46b (vs. a UAH 0.28b net loss in 9m09), resulting in EBITDA and net margins of 26.2% and 18.1% respectively. Ukrnafta’s impressive performance was mainly due to better oil and gas pricing, while its operating results continued to deteriorate (Ukrnafta’s oil and gas condensate production reduced by 12.9% y/y to 1.9m tonnes in 9m10 and gas output fell by 17.6% to 1.87b m3). In the telecommunication sector, Ukrtelecom published disappointing 3Q10 financials, posting net sales of UAH 1.67b (-3.2% q/q and -0.1% y/y), EBITDA of UAH 334m (-22.9% q/q and -36.5% y/y) and a net loss of UAH 109.7m (vs. a UAH 84.1m net income in 2Q10 and a UAH 70.7m net loss in 3Q09). The company’s 3Q10 net loss is attributable to higher operating costs and significant interest payments (UAH 87m in 3Q10). In 9m10, Ukrtelecom’s net sales grew by 2.2% y/y to UAH 5.07b, its EBITDA fell by 5.2% y/y to UAH 1.16b and its net losses reached UAH 61.4m (vs. UAH194m of losses in 9m09). Economic Environment According to the National Bank of Ukraine (NBU), the deficit of Ukraine’s current account (C/A) narrowed to $259m in September versus $566m in August, bringing 9m10 gap to $826m (-3.5 y/y). Ukraine’s financial account (F/A) ran a surplus of $1.5b in September, up from surplus of $596m in August. September’s surge in F/A was attributable to the $2b sovereign Eurobond placement. YTD, Ukraine’s F/A recorded surplus of $7.27b (versus deficit of UAH 11.32b in 9m10). Weekly Leaders / Laggards Largest Gainers Largest Losers Largest Turnover Turnover, Issuer Change Price Issuer Change Price Issuer USD Ukrnafta 7.96% 296.99 UAH Sumy Frunze Machine Engineering -31.20% 25.45 UAH Ferrexpo 15.8m Dniprospetsstal 7.83% 1 240 UAH KDD Group -28.85% 0.19 GBP Regal Petroleum 13.0m Astarta 6.65% 77.00 PLN JKX Oil&Gas -5.93% 2.81 GBP Kernel Holding 5.8m MCB Agricole 4.83% 1.65 EUR Ferrexpo -4.53% 3.24 GBP Ukrnafta 5.6m Centerenergo 4.50% 12.77 UAH Bogdan Motors -4.14% 0.17 UAH MHP 4.9m The information contained in this report was obtained in good faith from sources believed to be reliable. No guarantee, explicit or implicit, is provided with respect to completeness and accuracy of the information. The opinions expressed represent the current opinion of the authors and do not represent the opinion of Citadele Asset Management or any of its affiliates, subsidiaries or representatives. The opinions are subject to change without prior notice. Neither Citadele Asset Management nor any of its affiliates, subsidiaries or representatives accepts the liabilities arising from the possible use of the information contained in this report. This material is provided for informational purposes only and should not be construed as advice to buy, hold or sell a particular security or investment. Any investment you make shall be based solely on your own evaluation of your financial circumstances and investment objectives. .
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