Astarta produces 355 kt of sugar in 2015, a 24% yoy drop

Ukraine’s leading sugar producer Astarta (AST PW) completed its sugar production season, according to its Dec. 29 press release. In the 2015 season, it produced 355 kt of white sugar (24% less yoy), out of which 70% is premium quality sugar. Its sugar extraction ratio was 15.5% (compared to about 15.0% in 2014 and its previously expected rate for this year of 15.6%). It also reported a 7% yoy reduction in natural gas use per ton of sugar produced (after the last year’s decline of 2% yoy).

Alexander Paraschiy: The decline in sugar production is a Ukraine-wide trend this season, which has already led to a significant increase in domestic sugar prices. In USD terms, sugar prices are about 20% higher yoy in 4Q15. Beneficial pricing, as well as lower natural gas prices and decreased use of natural gas (the key sugar cost component), will enable Astarta to boost the profitability of its sugar segment in 4Q15, we expect.

We expect Astarta will post strong financials in 4Q15 and will report a yoy increase in its EBITDA in full-year 2015. The key risk for the next year is a decrease in Astarta’s VAT subsidy (which contributed 5.2% to its 9M15 EBITDA), based on the new tax legislation in Ukraine approved last week. The costs related to the decrease in its VAT subsidy, however, will likely be partially compensated by a return of VAT from grain exports and a decrease in salary-related taxes. All in all, we are retaining our positive view on Astarta stock.