Luhanskteplovoz raises output 3.3x yoy in 8M08

Luhanskteplovoz’s (LTPL: U/R) production in dollar terms increased 3.3x yoy to USD 148.6 mln in 8M08, the company announced yesterday. Viktor Bykadorov, Luhanskteplovoz CEO, said the company’s output could be USD 309.3 mln by the end of 2008 (+2.5x yoy). According to Bykadorov, Luhanskteplovoz’s financial results remain weak: the company incurred losses in 1H08. Last week, Transmashholding, the Russian holding company that includes Luhanskteplovoz, announced plans to construct a new production plant in Russia with a capacity of 300 locomotive sections per annum. Inna Perepelytsya: Luhanskteplovoz continues to increase sales thanks to orders from Russia, while in our view, its company’s low profitability is related to lingering uncertainty surrounding its privatization. We believe the plant will turn a profit in 2009, after reprivatization speculation is resolved. We view Transmashholding’s recent announcement as a signal to Ukrainian authorities that the Russian government could substitute Luhanskteplovoz’s locomotives. Though, we estimate there is a low probability of TMH actually going ahead with construction of the new plant.