DTEK increases generation 11%, decreases anthracite use 30% in 5M18

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) generated 16.81 TWh of electricity in 5M18, Concorde Capital calculated
based on sector-wide data presented by Energy Ministry last week. This is 10.8%
more yoy and 0.4% above the amount planned by Energy Ministry. The thermal
power plants (TPPs) of DTEK generated 14.95 TWh of electricity, or 11.8% more
yoy.

The holding experienced a significant shift from the
use of anthracite coal (not available in Ukraine since the blockade of occupied
Donbas started in 1Q17) to the available hard steam coal: the use of anthracite
decreased 30% yoy to 1.01 mmt, while the use of hard coal increased 23% yoy to
6.51 mmt in 5M18. For instance, the holding’s Prydniprovska TPP, which was
designed to burn anthracite, decreased the proportion of anthracite in its coal
mix to 14% in 5M18 and to 0% in May (from 100% a year before).  

Alexander Paraschiy: Based on
the above data, we expect DTEK Energy will increase power generation by about
2-3% yoy in 2018, mostly due to the increased utilization of its
hard-coal-fired units. DTEK’s efforts to convert some of its power units from
anthracite to hard coal are showing tangible results and allow the holding to
decrease its coal import needs. According to DTEK’s business plan, it is going
to decrease the use of anthracite by about 40% yoy to 1.9 mmt in 2018, of which
it will import from third parties only 0.3 mmt (down 67% yoy), while the rest
will be bought from the related Russia-based Obukhovskaya mine. Thus far, this
plan looks achievable for DTEK.

Costs savings related to the decrease of anthracite
imports, coupled with the increased mining of hard steam coal and higher
achieved electricity rates promise an increase of the company’s operating
profit in 2018, on a yoy basis. That said, we remain neutral about DTEKUA
Eurobonds, which currently trade at a 10.2% yield to convention.