Motor Sich P&L deteriorates in 1Q18

Ukrainian aircraft
engine producer Motor Sich (MSICH UK) released a set of weak P&L results in
its 1Q18 regulatory filing published on Apr. 27. Namely, its revenue decreased
23% yoy to UAH 2,564 mln, its EBITDA plunged 63% yoy to UAH 646 mln and its
bottom line dropped 63% yoy to UAH 542 mln in 1Q18.

At the same time,
its net cash flow from operations more than tripled yoy to UAH 893 mln and its
cash balance improved to UAH 3,218 mln (up 17% qoq and up 34% yoy). Its net
debt remained negative. The company also enjoyed an increase in other key
balance sheet items: prepayment received from customers rose 26% yoy and 17%
qoq to UAH 2,825 mln, while work in progress and finished good inventories
increased 10% yoy and 7% qoq to UAH 10,844 mln.

Alexander
Paraschiy: The
higher inventories and prepayments received suggest the company’s order book
remains strong and will prompt Motor Sich’s revenue to significantly improve in
the coming quarters. Therefore, we consider the company’s fundamentals to remain quite strong.

At the same time, we retain our cautious recommendation on MSICH stock,
seeing a lot of risks for it. Recall also that the company’s stock was
banned from trading last week due to
an ongoing investigation by the Security Service of Ukraine of an alleged sale
of Motor Sich’s
controlling stake to Chinese investors.