Astarta boosts sugar prodcution 53% yoy in 2014

Sugar production by Ukraine’s leading producer Astarta (AST PW) surged 53% yoy to a record-high of 466 kt, the company reported on Jan. 22 as part of its 2014 operating results. It also reported a 15% yoy jump in its sugar beet harvest to 2.4 mmt. Astarta’s raw milk production rose 14% yoy to 104 kt, while its grains and oilseeds harvest declined 11% yoy to 680 kt. The company’s bioenergy complex, launched last year, produced 6.8 mcm of gas, while its soybean processing plant produced 150 kt of meal and 35 kt of soybean oil in its first year of operations.

Alexander Paraschiy: The company’s robust sugar production is not something unique for Ukraine this season: sugar output should increase 73% yoy to 2.1 mmt, according to the national association of sugar producers. The increase in sugar output, which exceeds annual domestic demand for sugar (estimated at 1.8-1.9 mmt), will most likely prevent an increase in UAH-denominated sugar prices in the current season, which is not encouraging news for Astarta. Nonetheless, we believe some price weakness will only improve Astarta’s position on the domestic sugar market and will enable it to benefit more in the next season, when less efficient sugar makers might quit. 

The company’s cost advantages are rooted in continuous efforts to improve its use of fuel (by gradual cuts in natural gas use, some shifting to biogas) which is one of the main components of sugar costs, the cheaper cost of capital and synergies at its farming business. These advantages, as well as the de facto exit of key players in the domestic sugar market (Ukrlandfarming, Mriya, Kernel), would allow Astarta to continue its consolidation on the sugar market at a relatively low cost, and benefit from increased market power in the future. Therefore, we are bearish on Astarta’s stock price movements in the near future, while remain positive on the company’s mid-term value growth.