Market Monitor October 13, 2011 Market Update STOCK MARKET PERFORMANCE Equity UX Index RTS Index* WIG 20 Index* 2,500 Local stocks again lagged strong gains seen on European bourses on 2,250 Wednesday (Oct 12), as Ukraine continued to receive a dressingdown from EU leaders over the conviction of former PM Yulia Tymoshenko. 2,000 The approval by Slovakia’s parliament of an increase in the EU’s bank 1,750 bailout fund fueled a rise of more than 2% in Frankfurt and Paris, 1,500 while the UX index managed a gain of only 0.5% to 1,327 points. The 1,250 11-Jul 25-Jul 8-Aug 22-Aug 5-Sep 19-Sep 3-Oct day’s best performer was volume leader Motor Sich, which added * rebased 1.5% on turnover of UAH 13mn. Other top liquid names, including CentrEnergo, Alchevsk Steel, Azovstal, and Ukrsotsbank, were up MARKET INDEXES by between 0.5% and 1%. In London, Ferrexpo continued its strong Last 1D ch 1M ch YTD rebound on fading global recession fears, picking up another 7.9% to UX 1326.4 0.7% 12.7% 45.7% RTS 1407.8 3.9% 13.4% 20.5% USD 3.30. WIG20 2316.7 2.4% 3.0% 15.6% MSCI EM 923.2 1.5% 7.0% 19.8% Fixed Income S&P 500 1207.3 1.0% 4.6% 4.0% Ukrainian sovereign Eurobonds saw a broad rebound on Wednesday. Ukrainian midterm Eurobonds added 2.0p.p. 84.0/88.0 UX INTRADAY OCTOBER 12, 2011 (10.70%/9.58%), while longterms rose by 4.0p.p. and closed at 1,345 Close as of 11 Oct. 2011, 1317.1 88.0/89.0 (9.93%/9.75%). Corporate names followed the general 1,335 trend and were higher as well. The biggest gainer was DTEK15s, which gained 2.0p.p. to 90.0/92.0 (13.08%/12.31%). Metinvest18s 1,325 increased by 1.7p.p., fi xing at 86.5/88.5 (11.81%/11.32%). In the 1,315 banking sector the biggest gainer was Oschadbank16s, which rose 1,305 1.6p.p., closing at 79.0/81.2 (14.89%/14.12%). 10:30 11:15 12:00 12:45 13:30 14:15 15:00 15:45 16:30 17:15 Volume, Number FIXED INCOME Volume Leaders Ticker Last, USD 1D ch USD mn of Trades Last 1D ch 1M ch YTD Motor Sich MSICH 216.05 1.5% 1.6 574 EMBI+Global 411.7 4.4% 7.0% 42.7% Alchevsk Steel ALMK 0.0102 0.7% 1.3 867 CDS 5Y UKR 900.0 8.9% 55.2% 75.5% Centrenergo CEEN 0.87 0.5% 0.9 437 Ukraine13 12.10% 0.3 p.p. 6.0 p.p. 6.6 p.p. Growth Leaders Naftogaz Ukr14 12.94% 1.9 p.p. 5.6 p.p. 6.3 p.p. Ukravto AVTO 11.18 32.3% 0.01 23 Ukraine20 10.17% 0.7 p.p. 2.8 p.p. 2.6 p.p. Bank Forum FORM 0.29 9.5% 0.01 22 Privatbank16 16.64% 0.0 p.p. 6.3 p.p. 9.7 p.p. Centralny GOK CGOK 0.77 3.3% 0.03 29 CURRENCY Loss Leaders Last, UAH 1D ch 1M ch YTD Mariupol Ilyicha MMKI 0.03 6.6% 0.00 16 USD 8.02 0.2% 0.2% 0.9% Dniproenergo DNEN 88.57 2.1% 0.03 8 EUR 11.03 1.1% 1.0% 5.1% Khartsyzk Pipe HRTR 0.11 1.6% 0.11 16 RUB 0.26 1.4% 3.5% 0.1% Highlights COMMODITIES POLITICS AND ECONOMICS Last 1D ch 1M ch YTD WSA Expects Global Steel Use to Grow by 5% YoY in 2012 Wheat, USD/t 232.4 1.3% 13.1% 12.6% UkrStat: August Trade Defi cit Was USD 1.4bn Steel, USD/t 677.5 0.0% 3.9% 6.7% Oil, USD/bbl 85.6 0.3% 2.1% 9.4% STOCKS IN THE NEWS Gold, USD/oz 1676.0 0.8% 9.7% 18.0% Hyundai Considers Building New Assembly Plant in Ukraine Source: Bloomberg, Ukrainian Exchange Motor Sich to Modernize Helicopters at Konotop Plant www.eavex.com.ua 33 Shevchenko Blvd., Kyiv, Ukraine, 01032 (+380 44) 5905454, (+380 44) 5905464 offi [email protected] Stocks in the News October 13, 2011 WSA Expects Global Steel Use to NEWS Grow by 5% YoY in 2012 The World Steel Association expects global steel consumption in 2011 by Ivan Dzvinka to have increased by 6.5% YoY to 1.40bn tonnes, according to the [email protected] organisation’s press release (Oct 12). For 2012, the WSA forecasts that global steel use will move up by 5.4% YoY to 1.47bn tonnes. Calling its forecast “cautiously optimistic”, the WSA based its 2012 outlook on assumptions that developing economies will continue to drive global growth and that the policy response to the European sovereign debt crisis will prevent increased volatility in equity and fi nancial markets. APPARENT STEEL USE BY REGIONS mn tonnes 2010 YoY 2011E YoY 2012E YoY European Union 144.9 21.1% 155 7.0% 158.9 2.5% Other Europe 29.6 24.0% 33 11.3% 34.8 5.7% CIS 48.6 34.5% 55.6 14.4% 59.8 7.5% NAFTA 110.9 32.8% 120.9 9.0% 126.8 4.9% Central & South America 45.6 35.2% 47.8 4.7% 52.4 9.8% Africa 24.5 -8.9% 21.4 -12.7% 23.8 11.0% Middle East 47.6 14.6% 50 5.0% 53.9 7.9% Asia & Oceania 860.6 11.1% 914 6.2% 963.1 5.4% World 1,312.4 15.1% 1,397.5 6.5% 1,473.6 5.4% Source: World Steel Association COMMENTARY The expected deceleration of steel use growth in the EU to 2.5% in 2012 from 7.0% in 2011 would negatively affect Ukrainian steel export dynamics over 2012. This is because the EU accounts for a large chunk of Ukrainian steel exports, having consumed 31% of the total fi gure over 7M11. On the other hand, acceleration of steel use growth by Middle East countries to 7.9% in 2012 from 5.0% in 2011 is positive for Ukraine, which exported about 4mn tonnes of steel to that region in 7M11, a 30% share in its total. We note, however, that a sharp slowdown in the 2012 GDP growth of Turkey, the third largest national importer of Ukrainian steel, would have an adverse impact on Ukraine’s steel exports volumes. The IMF expects the GDP growth of Turkey to slow to 2.2% in 2012 after 6.6% growth in 2011E. At this stage, we maintain our forecast that Ukrainian steel output will have moved up by 5% YoY to 34.5mn tonnes in 2011, with the increase in 2012 dropping to about 1% YoY with output of 34.7mn tonnes. www.eavex.com.ua 2 Politics and Economics October 13, 2011 UkrStat: August Trade Defi cit Was NEWS USD 1.4bn Ukraine’s trade defi cit amounted to USD 1.4bn in August, bringing the YtD by Dmitry Churin trade defi cit to USD 8.1bn, compared to a defi cit of USD 4.5bn in 8M10, the [email protected] State Statistics Committee reported on Wednesday (Oct 12). The country’s exports of goods were up 39.4% YoY to USD 43.9bn while imports grew 44.6% YoY to USD 52.0bn in 8M11. UKRAINE’S MONTHLY EXPORT-IMPORT, USD bn Export Import Balance 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - (1.0) Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 (2.0) (3.0) COMMENTARY The trade defi cit in August was 22% higher than in July, which we think was due to a slowing in Ukraine’s steel exports to Arab markets during Ramadan. Among other factors were export duties for Ukrainian grain, which limited exports of the current harvest. We forecast that Ukraine’s trade defi cit will total USD 12.6bn in 2011, increasing 35% YoY. www.eavex.com.ua 3 Stocks in the News October 13, 2011 Hyundai Considers Building New NEWS Assembly Plant in Ukraine Hyundai is considering building a minibus and light commercial vehicle Iryna Levkivska (LCV) plant in Ukraine, the business daily Kommersant reported on Monday [email protected] (Oct 11). The annual capacity of the new plant would be 150,000200,000 BOGDAN MOTORS (LUAZ UK) vehicles. Ukrainian Deputy Prime Minister Boris Kolesnikov said that a Price: USD 0,027 Market Cap: USD 118mn contract may be signed in December and the project can be completed within 18 months. EV/S P/E EV/EBITDA Div. Yield 2011E 0.9 31.5 8.8 0% COMMENTARY 2012E 0.7 9.1 7.6 0% We consider this news as negative for Bogdan Motors, which currently assembles Hyundai cars in Ukraine. Bogdan Motors is one of the largest producers of buses and LCVs in Ukraine and emergence of such a large competitor would be a major setback for Bogdan. Hyundai is planning to export its vehicles to the EU and CIS market, as the announced capacity of the plant is 10x larger than the Ukrainian market for Hyundai vehicles.