MHP EBITDA falls 6.1% yoy in 1H19

Ukraine’s largest poultry producer MHP (MHPC LI,
MHPSA) reported USD 946 mln in net revenue in 1H19, or 36.4% more yoy,
according to its Sept. 6 filing. Its revenue from sales of poultry increased
11.7% yoy to USD 688 mln on higher sale volumes, while the average poultry
price was almost flat yoy in 1H19.

The company’s EBITDA decreased 6.1% yoy to USD 247 mln
in 1H19. Its poultry segment EBITDA rose 4.5% yoy to USD 161 mln, while its
grain growing segment generated USD 74 mln, or 32.7% yoy less in 1H19. The
company’s EU-based facilities generated USD 16 mln of EBITDA in 1H19. MHP’s
operating cash flow before working capital changes was USD 138 mln, almost flat
yoy, while net cash flow from operations rose 2.8x yoy to USD 224 mln in 1H19.

The company’s CapEx was USD 59 mln (vs. USD 126 mln in
1H18). largely spent on the launch of production sites of the second phase of
its Vinnytsia poultry factory complex. Also, the company received state
compensation for the construction and reconstruction of livestock farms in the
amount of USD 6.0 mln in 1H19. Its net debt-to-LTM-EBITDA ratio was 2.92x at
the end-June, compared to 2.59x a year ago and 2.51x six months ago.

In 2Q19, MHP’s total EBITDA jumped 97.6% qoq (or 5.6%
yoy decrease) to USD 164 mln, while its poultry segment EBITDA rose 23.6% qoq
(or 15.6% yoy increase) to USD 89 mln, and its EBITDA from its farming segment
improved 5.7x qoq (or 39.4% yoy decrease) to USD 63 mln in 2Q19.

MHP’s Sept. 6 filing also included the results of its
winter crop harvest. Its winter wheat yield rose 3.2% yoy to 6.5 t/ha (or 55%
higher than the average Ukrainian yield this season), while the rapeseed yield
fell 15.8% yoy to 3.2 t/ha (or 28% higher than average yield this season).

Andriy Perederey: The
company’s USD 89 mln EBITDA from its poultry segment was in line with our expectations. Also, we
are keeping unchanged our expectations about the company’s ability to generate
EBITDA of about USD 335 mln in its poultry segment in 2019, or an 8% yoy
increase. The company had strong winter wheat yields, but slightly lower spring
crop yields, so we expect some weakening of its grain-growing segment EBITDA
this year.

We expect the company’s total 2019 EBITDA at about
USD 500 mln, or 11% higher yoy, supported by rising sales volumes in its
poultry segment and contributions from its EU-based facilities. We remain
bullish on MHP stock and neutral on its Eurobonds.