MHP poultry sales fall 15.7% qoq, average poultry price up 3.5% qoq

Ukraine’s leading poultry producer MHP (MHPC LI,
MHPSA) reported its 4Q17 poultry sales fell 13.2% yoy to 113.7 kt, (15.7% qoq
drop), according to the company’s trading update released on Jan. 25. The
company produced 141.5 kt of poultry in 4Q17, a 4.5% yoy decline, (4.5% qoq
increase). The company’s average poultry price was USD 1.51/kg in 4Q17, which
is 28.6% higher yoy and 3.5% higher compared to 3Q17.

In 2017, the company sold 532.7 kt of poultry (almost
flat yoy), while export volumes rose 16.2% yoy to 220.9 kt (which implies the
export share in sales volumes rose to 41.5% from 35.6% a year ago). The average
selling price in UAH terms rose 25.3% yoy to UAH 35.63/kg and improved in USD
terms by 20.0% yoy to USD 1.34/kg in 2017.

MHP also reported its final harvesting results as crop
production declined 15% yoy to 1.99 mmt in the 2016/17 season, citing adverse
weather conditions. They affected the yields of all its crops: corn dropped
14.2% yoy to 7.3 t/ha, wheat slid 6.5% yoy to 6.0 t/ha, sunflower seed decreased
8% yoy to 3 t/ha and rapeseed fell 3.7% yoy to 3.3 t/ha.

MHP also announced its 2017/18 sowing campaign
results, with 86.57 kha total winter crops sown. 48.5 kha was sown under winter
wheat, 30.3 kha under rapeseed and 7.8 kha under other winter crops.

Andriy Perederey: MHP is
benefiting from a rise in average selling prices, in both the local currency
and USD terms. That will be the key driver of its bottom line improvement in
2017, while its selling volumes are almost flat yoy. The significant average
poultry price increase was the result of product mix optimization in line with
company’s export strategy.

But while the company will continue to have an edge in
its poultry segment, its farming segment showed weaker results on a yoy basis,
which will lead to a lower contribution to the company’s 2017 total EBITDA.

Nevertheless, we expect MHP’s 2017 EBITDA at about
USD 460-470 mln. And we remain bullish on MHP stock and neutral on its
Eurobonds.