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MARKETS OVERVIEW:
Ukrainian indexes grow again. The hryvnia strikes back
Ukrainian indexes rose on Thursday, moving almost exactly in line with European indexes intraday. Off the open, the UX and European indexes gapped up on yesterday's FRS decision to keep rates low, after that negative macrodata sent the indexes into the red. The markets saw other up and down movement later in the day – up on upbeat quarterly reports from the US and down on the strengthening of the US dollar, which broke through the USD/EUR 1.40 support. European indexes continue their slide as this report is being written, while Ukrainian ones had their agony cut short at 5 PM. The UX index finished the day up by 0.49% at 1681 points, while the PFTS index grew by 0.74% to 638 points. Activity on the UX was again quite high, which, against the background of the generally positive mood, points at the strong conditions of the Ukrainian market despite the heightened political activity ahead. The volume on the UX reached UAH 48m, while turnover on the PFTS was a more modest UAH 7.7m. All blue chips on the UX rose except for Ukrnafta that dropped by 1.9% on the verge of the ex-rights date for two dividend tranches.
Yuri Belinsky
The Ukrainian FX market experienced a significant hryvnia appreciation on Thursday. The Interbank FX Market closed at UAH/USD 8.0010-8.0080, with the hryvnia gaining 0.9% against the dollar. This is the most impressive daily hryvnia appreciation since November 5, 2009, when the Ukrainian currency leapfrogged from UAH/USD 8.26 to UAH/USD 8.13. We associate the current appreciation with the OVGZ auction held on Thursday which saw an impressive UAH 761m placement volume. As the payment day for these purchased OVGZs is Friday, this effectively created additional foreign currency supply on the market.
Oleksiy Blinov
ECONOMICS & POLITICS
Fiscal deficit: UAH 84bln instead of the official UAH 21bln
The Ministry of Finance has published its statistics on the 2009 budget: Consolidated Budget revenues stood at UAH 289.6bln (or 31.2% of our 2009 GDP estimate of UAH 924.3bln), while expenditures (including net credit granted from the budget) amounted to UAH 310.1bln (33.6% of GDP). This brought the budget deficit to just UAH 21.6bln (2.3% of GDP). Privatization receipts in 2009 amounted to UAH 0.8bln.
Astrum’s perspective: Throughout 2009, official fiscal statistics were highly secretive and “creative”. For instance, the government officially reported the fiscal deficit for 9M09 at UAH 24.5bln, while, in its letter to the IMF, it referred to a UAH 42.1bln deficit in 9M09 (see Astrum Daily of December 14, 2009). Then, the government decided to include the SDR allocation from the IMF into the fiscal revenues, valued at an equivalent of up to UAH 16bln. At the same time, we estimate the real fiscal gap by putting together all the sources of financing the fiscal gap. For instance, the government directly received USD 4.8bln, equivalent to UAH 37.2bln, from the IMF. After another UAH 16.2bln received from the IMF’s SDR allocation, the Fund became the biggest source of financing the fiscal deficit in 2009. Compiling all the financing sources for the 2009 budget has brought us to a deficit of UAH 84bln, or 9.1% of GDP (more detailed analysis will be presented in our flash note to be issued today). Moreover, the “wide” fiscal deficit – that is, including re-capitalization of Naftogaz and state-owned banks – stands at UAH 125.2bln, or 13.6% of GDP. While there is still no detailed official fiscal statistics for FY09, we are putting our estimates of Consolidated Budget revenues and expenditures in 2009 under review. We expect that the fiscal deficit in 2010 will amount to UAH 67bln, or 6% of GDP. With the government still holding plans for the re-capitalizations of state-owned companies, the “wide” deficit might reach 10% of GDP this year.
Oleksiy Blinov
Increased imports pull current account down
According to the preliminary balance of payments data for December’09, published by the National Bank of Ukraine, the current account posted a deficit of USD 830m. The accumulated current account deficit in 2009 stood at USD 1.9bln, or 1.6% of GDP. At the same time, the financial account posted a surplus of USD 363m. This brought the accumulated 2009 financial account deficit – that is, the financial account less the change in reserve assets – to USD 4.8bln, or 4% of GDP.
Astrum’s perspective: The big deficit in the December’09 current account was largely associated with peak gas imports. In December’09, Ukraine imported 4.3bln cubic meters of natural gas worth USD 893m. However, gas is not the only answer to this wide gap in December’09 foreign trade. Other imports were also on the rise, with a remarkable 32.7% m/m growth in machinery imports. This suggests that some revival in investment is already occurring in Ukraine and supports our view that investment will grow by 8% in real terms in 2010.
At the same time, there were no significant external debt payments in December’09, which allowed the financial account to post a surplus in December’09. FDI activity in December’09 was low, at just USD 120m, bringing the FY09 accumulated indicator to USD 4.5bln. Foreign currency outflow into cash remains an issue, with such outflows amounting to USD 1.1bln and accumulated FY09 outflows totaling USD 9.6bln. We expect that both the current and financial accounts will post deficits of USD 0.5bln in 2010.
Oleksiy Blinov
FIXED INCOME
Extraordinary OVGZ placement highly successful
The Ministry of Finance at the OVGZ placement held on Thursday, January 28 offered 6-month bonds (redeemable on July 28, 2010) and 12-month bonds (January 26, 2011). The placement volume reached UAH 841m.
Astrum’s perspective: This auction may be considered as very successful for the government. The bulk of purchases were for 6-month bonds, which sold in the amount of UAH 840m, with the threshold yield level at 22.25%. This result confirms our expectations about preliminary agreements between the government and banks, which allowed the government to attract significant funds. So far in 2010, the government has attracted up to UAH 1bln from the domestic debt market, which is close to 60% of its refinancing needs for the OVGZ redemption on February 10. At the same time, we still expect to see a yields increase at the February 2 auction. In our view, the government will not be able to attract the needed amount without concluding new agreement with banks or else increasing yields, as was the case at the previous regular auctions. At the same time, we think that it would be a high-risk approach for the government to gamble by counting on the final auction on February 9 before the OVGZ redemption. Our point of view is based on the fact that this final auction will take place just after the presidential election, possibly on a negative information background, and only one day before the scheduled OVGZ redemption, which leaves open the possibility for anything to change. As a result, we think that the next regular auction (February 2) is the key event for the government and will see yields all along the curve being pushed upwards. However, the new agreements between the government and state-owned banks might limit such growth.
Sergey Fursa
COMPANIES & INDUSTRIES
Megabank reports UAH 1.58m net income for 2009
Megabank's (MEGA: BUY) 2009 net income saw a 93% decrease to UAH 1.58m.
Astrum’s perspective: Such a net income level is in line with our forecast of UAH 4m. This sharp decrease in net income is, in good part, due to a 39% (UAH 27m) increase in the loan loss reserves in 2009. The Bank’s assets grew by just 8% in 2009. We expect that MEGA will post an improved net income in 2010 and maintain our BUY recommendation.
Yaroslav Stetsik
Kruykiv Railcar remains in the black despite 2009 output drop
According to the chairman of the board of Kryukiv Railcar (KVBZ: BUY) Evgen Khvorost, the Company delivered 21 passenger railcars to customers in 2009, 81% down y/y. All of those shipments went to Belarus. He also stated that the Company posted a net income in 2009 but abstained from mentioning numbers.
Astrum’s perspective: This news is in line with our expectations. We expected that KVBZ’s 2009 railcar output would drop 55% to 3,025 railcars, including 3,000 freight railcars and 25 passenger railcars. Just as we had anticipated, the sales to Belarus saved the Company from what would otherwise have been the total absence of orders for passenger railcars. According to our estimates, on the back of the output drop in 2009, the Company’s net sales dropped by 57% to UAH 1,399m. At the same time, KVBZ should still post a UAH 46m net income in 2009 and we believe that the Company is the only domestic railcar producer that will post a net income in 2009. The news about the Company’s positive bottom line in 2009 drove KVBZ’s share price up by 11.6% to UAH 21.5 during yesterday’s trading session on the UX.
Igor Bilyk
TATM to modernize Aksu TPP in 2011
According to the press-service of Turboatom (TATM: BUY) the Company won the tender for modernization of the turbine at the fourth power unit at Aksu TPP (Kazakhstan). TATM should replace K-300-240 turbine with new generation turbine K-325 of 25 MW higher capacity. Delivery of equipment should start in 1H11.
Astrum’s perspective: This is the good example of a long term cooperation of TATM and its customers. The Company started equipping all eight power units of Aksu TPP in 1968. TATM’s equipment proved to be high quality and currently the Company is getting orders for modernization of these power units. This should be the fourth turbine that TATM will modernize at Aksu TPP. We reiterate our BUY recommendation for TATM.
Igor Bilyk
Alchevsk Coke expects better coal supplies in February
According to the Metal-Courier, Alchevsk Coke (ALKZ: HOLD) corrected its production plans for January’10 from 285,000 tonnes of coke to 255,000 tonnes, flat m/m. The reason for this correction is lower deliveries of Russian coal and worsening of the coal mix quality. ALKZ intends to increase imports of coal from USA and Russia and produce 258,000 tonnes of coke in February’10, up 1% m/m. In terms of average daily output, ALKZ’s output in the next month should be up 12% m/m to 9,200 tonnes, which corresponds to ALKZ’s full capacity.
Astrum’s perspective: In the case that ALKZ manages to improve coal deliveries in February this should soften our concerns about the continuation of problems at the Company despite changes in the shareholder structure of mother company IUD. This should be POSITIVE for stocks of ALKZ as well as for Alchevsk Steel (ALMK: U/R) which consumes ALKZ's coke.
Yuriy Ryzhkov
PREN and SOEN auctions postponed again
The State Property Fund of Ukraine (SPF) has again postponed the sale of the 25% block in Prykarpattiaoblenergo (PREN: N/R) and Sumyoblenergo (SOEN: N/R), this time from January 29 to February 5, 2010, due to the absence of bidders.
Astrum’s perspective: The confrontation between the two major minority shareholders, Energy Standard and Mr. Surkis’ group, was the main obstacle for the successful privatization of Poltavaoblenergo (POON: N/R), Prykarpattiaoblenergo (PREN: N/R), and Sumyoblenergo (SOEN: N/R) in 2009. However, the recent AGM of Chernigivoblenergo (CHEON: N/R), which used to be one of the conflicting oblenergos, demonstrated the ability of these groups to settle conflicting issues (See Astrum Daily, January 15, 2010). We believe this may give way to successful privatization of POON, PREN and SOEN in 2010.
Yan Lipchinsky
NERC lowers February “green” tariffs
The National Electricity Regulatory Commission (NERC) has decreased the tariffs for electricity from renewable sources for February’10 by 1.3% m/m to UAH 1,280 per MWh for wind electricity and UAH 878 per MWh for hydro electricity.
Astrum’s perspective: “Green” tariffs are fixed in EUR and approved in UAH equivalent, which obliges NERC to adjust the UAH equivalent to the UAH/EUR exchange rate on a monthly basis. February "green" tariffs for hydro and wind electricity are 100-190% higher compared to the January's wholesale electricity price of UAH 441 per MWh. We believe that the green tariffs offer lucrative investment opportunities in Ukrainian alternative electricity generation segment, which currently accounts for less than 0.2% of the total electricity output in Ukraine.
Yan Lipchinsky
To receive additional information, please contact:
Yuval Shavit
Communications Director
Astrum Investment Management
Mob.: +380 (67) 236 46 73
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