DTEK Energy power generation falls 15% in 5M19

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) generated 14.25 TWh of electricity in 5M19, Concorde Capital
calculated based on information provided by Energobiznes. This is a 15.3% yoy
drop and a 5.9% yoy decline on a like-to-like basis (excluding data from
Kyiv-based heat and power plants that DTEK has not operated since August 2018).
In May alone, DTEK Energy generated 2.48 TWh of electricity, which is 11.5%
less yoy and 5.9% less yoy on a like-to-like basis.

One of DTEK’s thermal power plants, Kryvorizka, was
idle in May.

In other news, Interfax-Ukraine reported on July 29
that DTEK’s Luhanska thermal power plant has run out of coal and had to switch
to burning natural gas. The plant received no coal in July. The only way to
supply coal to the plant by railway is from Russia (e.g., from a DTEK-related
mine located in the Rostov region). As of July 30, the plant had 3.1 kt of coal
in its stockpiles, which covers its coal needs for just one day.

Alexander Paraschiy: We conclude
that DTEK Energy boosted its power generation in June by about 33% yoy, based
on interim information on coal consumption provided by the Energy Ministry. If
so, DTEK Energy’s 1H19 power generation will be nearly flat yoy, on a
like-to-like basis.

The company’s 1H19 financial results will most likely
be worse yoy, due to a weaker average achieved power price in 2Q19. In 2H19,
the company’s profit could improve in line with expected rising power prices,
prompted by a liberalized energy market since July. However, the need to switch
the Luhanska power plant to burning natural gas, which is much more expensive
than coal, can potentially eat away all the economic benefits of the new
market.

All in all, there are a lot of uncertainties for
DTEK’s financial performance in 2019. Our base case scenario is the holding’s
EBITDA will slightly worsen this year, as compared to 2018. At the same time,
we remain bullish on DTEKUA Eurobonds, which offer the highest yield among
solvent Ukrainian issuers.