Kernel crushing volumes surge 22% yoy in 1H18

Ukraine’s largest sunflower oil producer and grain trader
Kernel (KER PW, KERPW) boosted its sunflower seed crushing volumes by 22% yoy
to 1.45 mmt in 1HFY18 (July-December 2017), according to an operational update
published on Jan. 19. Bulk oil sales increased 29% yoy to 658 kt and bottled
oil sales grew 3.6% yoy to 59.6K liters in 1HFY18. The company’s grain sales
dropped 27% yoy to 1.99 mmt, mainly due to an 85% yoy plunge to 106 kt of
shipments from Russia. Export terminals throughput decreased 3.8% yoy to 2.94
mmt in 1HFY18.

In 2Q FY18, the company’s sunflower seed crushing
volumes inched up 0.2% yoy to 0.91 mmt, or a 68% qoq plunge. Bulk oil sales
slid 22% yoy to 265 kt (or a 33% qoq decline) and bottled oil sales dropped 26%
yoy (and 17% qoq) to 27K liters in 2QFY18 owing to to the expiration of a one-year
export contract with a client, the company said. Kernel’s grain sales dropped
23% yoy to 1.18 mmt (a 47% qoq jump) in 2QFY18. Export terminals throughput
decreased by 0.8% yoy (or 28% improvement qoq) to 1.65 mmt in 2Q.

Andriy Perederey: Kernel reported
stable sunflower seed crushing volumes in 2QFY18, which have been close 0.91
mmt in 2Q for the last two financial years. The difference between high
crushing volumes and lower oil sales in bulk have resulted in an increase in
inventories and will influence the company’s 3QFY18 EBITDA. Such a difference
is normal for the seasonal oilseed business.

We estimate Kernel’s 2QFY18 EBITDA will be about
USD 42-45 mln, based on its operating results. Also, we expect a positive
effect of large inventories on Kernel’s 3QFY18 EBITDA, which we estimate will
be close to USD 50 mln (net of the possible effect of revaluations in its
farming segment). We retain our Buy recommendation on Kernel stock as well as
our neutral view on its Eurobond.