Avdiyivka Coke decreases 2008 production target by 11%

Avdiyivka Coke (AVDK: BUY) announced yesterday it reduced its production target for met coke by 11.1% to ~4 mln mt in 2008. The decrease in the plant’s coke production is related to low demand from steel plants and a shortage of coking coke. Meanwhile, the company plans to boost coke production to 6.12 mln mt by 2010-2011 (up 70% from 2007). Andriy Gerus: We estimate the company’s plans to decrease production in 2008 as too pessimistic. In January-September, Avdiyivka increased coke output by 39% yoy to 3.1 mln mt, with average monthly production at 388 ths mt. Given lower demand from steelmakers (in September steel mill’s utilization rate decreased to 75%, from more than 95% in July), we expect that in September-December Avdiyivka will decrease monthly production by 25% to 290 ths mt. Thus, we anticipate the company will produce 4.2 mln mt of coke in 2008, up 17% yoy (10.5% below our previous forecast). We reiterate our BUY recommendation, currently the stock trades at 1.6x EV/EBITDA ’08 multiple.