Research Notes
Raspadskaya: at breakeven point
| 22.04.09 |
Raspadskaya closed 2008 with a record profit, but in 2009, the company has already faced a drop in demand for iron raw materials and a steep fall in coal prices. We expect the company to show much weaker financials this year; however, Raspadskaya’s stable credit standing and low production costs should help it overcome the crisis without any serious troubles.
Healthy financial state. The company’s cash positions as of late 2008 totaled USD 187 million, 5-times ST debt coverage. As much as 85% of the company’s total debt is not due until 2012. Moreover, in line with our estimates, the company’s 2009 Debt/EBITDA ratio should not exceed 3 even amid the crisis.
Robust 2008 results. Despite a 31% drop in productive output, the company managed to raise its 2008 net profit to USD 531 million and its net margin was 44%. However, the market conditions deteriorated in the last few months of 2008, and we expect the company’s financials to suffer a sharp downturn in 2009.
Just above the breakeven line. In 1Q 2009, the sales price per ton of coal concentrate averaged USD 47 – an 80% down from the average price in 3Q 2008. Based on our estimates, Raspadskaya’s revenue could drop by 72% in 2009, net profit could slump by 98% to USD 10 million, and the net margin should be about 3%.
Lower prices. Given the extremely negative impact the global economic meltdown has had on the industry, we have downgraded our 2009-2015 forecast for coking coal prices by 34-48%. Coking coal prices should rise to only USD 80 per ton by 2012, and should grow at 3% annually in the years to follow.
Export contracts. Raspadskaya management said during a conference-call that the company would begin to supply coking coal to Japan in mid-April 2009: the first contract requires the delivery of 500,000 tons of coking coal. Additional negotiations are ongoing over supplies to other South-East Asian countries.
We are upbeat on the company’s willingness to enter new markets and diversify its delivery structure. However, we estimate that high coal prices will be almost fully outweighed by high transportation costs.
Capacity utilization. Given the high proportion of fixed costs at Raspadskaya, an increase in capacity load is critical to lower the company’s production unit costs. The company management expects the capacity load ratio to rise to 80% in 2Q 2009, which is certainly a positive factor.
We have lowered our 12-month target price for Raspadskaya by 40% to USD 2.22 per share, but reiterate our BUY recommendation on Raspadskaya shares.
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Sectors: Metals, CoalCompany: Raspadskaya