Dniproenergo's Sales Grow 1.6x yoy, Net Income Falls 1.5x yoy in 1Q08

Dniproenergo (DNEN: BUY) increased 60% yoy to USD 253 mln in 1Q08. Net income declined by 33% yoy to USD 6.6 mln. Alexander Paraschiy: Posting a30.2% yoy increase in production, the company became the leading GenCo by output growth in 1Q08 (the other three state GenCos raised their aggregate output by 9.6% yoy, according to preliminary data from the NC ECU). Almost one third of Dniproenergo’s production increase is related to switching on its gas-fired power unit at Zaporizhzhia power plant (the unit was idled in a 2Q07-4Q07). We link the company’s decreased bottom line to a sharp increase in energy coal prices, which was not compensated by a corresponding increase of electricity tariffs. According to the Ministry of Coal Industry (which sets coal prices for state-run coal mines), coal prices will stabilize beginning in May 2008. We expect electricity tariffs to be adjusted to new coal prices in 2H08, which will allow GenCos to raise profits.