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.
CONTENTS
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
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