Аннотация

Market analysis 

After showing its first signs of recovery since the 1990s over the last three years, the Ukrainian coal machinery sector risks a sharp slowdown. While in 2003-2007, the industry's domestic state and private customers almost tripled expenditures on coal mining equipment, they too will succumb to the slumping tide of the economy: we forecast Ukrainian real GDP growth to fall to 5.3% in 2008 and -1% in 2009

Although short-term concerns are mounting, we see fundamental drivers for the domestic coal industry in the next 5-10 years:

(1) Ukraine's strong need to cut its gas dependence on Russia to improve energy security;

 (2) and rising Ukrainian demand for coking coal from steelmakers, backed by rebounding demand for steel.

 Ukrainian steel producers, over the last month, have been confirming expansion programs, though they acknowledge 1-2 year delays

We value four public companies in the market - Dongirmash, Druzhkivka Machinery, Svitlo Shakhtarya, Yasynuvatsky Machinery, - using DCF model and peer valuation. When assigning target price recommendations, we took into account P&L quality, liquidity and parent group support.

Содержание отчёта

• 1. Investment thesis
  2. Industry summary
  3. SHORT-TERM RISKS
  4. SHORT-TERM government action
  5. LONG-TERM OPPORTUNITIES
  6. Valuation summary
  7. Market overview
  8. Short-term industry concerns
  9. Growth constrained by economic weakness
  10. Metallurgy: Large customer faces problems
  11. Political turmoil adds more risks
  12. Government offers assistance to coal industry
  13. Long-term outlook: sector will recover
  14. Government upgraded coal extraction targets
  15. ENERGY coal: Key to ukraine's energy independence
  16. COKING COAL: DEMAND OUTPACEs SUPPLY
  17. Expenditures on mining equipment must double to support at least current extraction
  18. SCM started consolidation of MB
  19. Needed steps for SCM to complete UMBH
  20. UMBH: A holding with both vertical and horizontal integration

  21. Company profiles
  22. Druzhkivka Machinery
  23. Monopoly producer of roof supports in Ukraine, SCM's preferred coal machinery asset
  24. Modernization program
  25. Key forecasts
  27. Svitlo Shakhtarya
  28. Ukrainian scraping conveyors monopoly
  29. Domestic operations: outlook
  30. Highest profitability among Ukrainian coal machinery producers
  31. Key forecasts

  33. Yasynuvatsky Machinery
  34. Largest Ukrainian coal machinery exporter
  35. Acquisition target
  36. Forecast revisions
  37. Dongirmash
  38. Most diversified producer in the sector
  39. Appendices
  39.1 Appendix A: Comparative valuation
  39.2 Appendix B: Key peer financials
  39.3 Appendix C: Our view on sector development: two phases
  39.4 Appendix D: Private vs. state owned mines: A historical comparison
  39.5 Appendix E: P&L quality is low
  39.6 Appendix F: Stock market monitor
  39.7 Analyst certification
  40. Investment ratings

• CHARTS

  Druzhkivka Machinery
  Svitlo Shakhtarya
  Yasynuvatsky Machinery
  Dongirmash
  Real GDP growth, %
  Equipment expenditures by Ukr. mines, breakdown by driver, USD mn
  Planned coal extraction in Ukraine, mln mt
  Yearly average gas price at Ukrainian-Russian border, USD/mcm
  Steam coal demand from Ukrainian generation companies, mln mt
  Coking coal demand in Ukraine, mln mt
  Ukrainian coal extraction in 1985-2007, mln mt
  Coal mines' average equipment expenditures, USD/mt of coal extracted
  SCM coal machinery asset structure
  Coal machinery assets sit atop SCM's energy & steel business chain
  Sales structure, 2007
  Revenues, USD mln
  Profitability
  Sales structure, 2007
  Revenues, USD mln
  Profitability
  Sales structure
  by country
  Production output, USD mln
  CapEx of Ukrainian coal mines, USD mln
  Ukrainian producers' market share, %
  Ukrainian state vs. private mines' equipment expenditures, USD/mt of coal extracted
  Coal machinery sector EBITDA margins, 1H08

  TABLES

  Production, units
  Druzhkivka Machinery DCF output, UAH mln, as of November
  Income Statement Summary, USD mln
  Balance Sheet Summary, USD mln
  Production output, units
  Svitlo Shakhtarya DCF output, UAH mln, as of November
  Income Statement Summary, USD mln
  Balance Sheet Summary, USD mln
  Roadheader production
  Forecast revisions. Sales
  Forecast revisions. Profitability
  Yasynuvatsky Machinery DCF output, UAH mln, as of November
  Income Statement Summary, USD mln
  Balance Sheet Summary, USD mln
  Income Statement Summary, USD mln
  Balance Sheet Summary, USD mln
  Summary of two phases before and after mine privatizations
  Ukrainian mines' profile
  Ukrainian coal machinery financials
  Ukrainian coal machinery expenses, common size