DTEK raises power and coal exports, decreases power generation in 1H13

Ukraine’s leading coal and power holding DTEK (DTEKUA) reported flat yoy production of coal in 1H13 at 20.0 mmt. Its power generation declined 5.2% yoy to 24.3 TWh, while the amount of power bought for distribution increased 29% yoy to 30.0 TWh. Its export activity showed spectacular growth in 1H13 with coal exports rising 43% yoy to 2.1 mmt and power exports increasing 15% yoy to 4.9 TWh.

The holding announced in its September 5 operating update that it will release 1H13 financials on September 17.

Alexander Paraschiy: The company’s operating results are of no surprise, with growth in its key segment again owing to non-organic factors. What surprised us positively was the growth in coal exports. The higher export revenue should be welcomed by holders of DTEK’s USD-denominated bonds.

DTEK’s coal output remained flat yoy in 1H13 only because of the consolidation of one Ukrainian and three Russian mines this year. DTEK’s organic coal output decreased 3% yoy, by our estimates. The result is still much better than Ukraine’s coal sector statistics: -6.3% yoy in 1H13. The reason for the increase in power distribution also has non-organic roots.

The decline in DTEK’s power output is a consequence of an overall decline in domestic power demand (-3.6% yoy in 1H13) and the partial offsetting of thermal production by cheaper hydro generation. Among DTEK’s generating assets, the steepest decline in output was demonstrated by Kyivenergo (KIEN UK, -30% yoy in 1H13) and Dniproenergo (DNEN UK, -11% yoy). The biggest mover was Zakhidenergo (ZAEN UK), which improved output 5% yoy on increased demand for electricity in EU countries (+26% yoy to 2.8 TWh in 1H13).

EU countries increased purchases of Ukrainian electricity since 2Q12, after DTEK received an opportunity to buy it from the wholesale market for export at a good discount (refer to our news from April 4, 2012). The latter was also a reason for DTEK’s power export growth.

Based on the provided results, we expect DTEK will report UAH 41.1 bln net revenue in 1H13 (+7% yoy), EBITDA of UAH 8.8 bln (+12% yoy) and net income of UAH 2.5 bln (+3% yoy).