DTEK Energy boosts coal mining 8% in September

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) produced 16.5 mmt of raw coal in 9M19, according to its Oct. 4 press
release. This is about a 6.7% yoy decline, according to Concorde Capital
estimates. In September alone, the holding produced about 1.76 mmt of raw coal,
which is 8.4% more compared to August (on daily average terms) but 18.7% less
yoy. DTEK plans to produce over 23 mmt of raw coal in 2019, the company’s press
release stated, which would be about 4.6% less yoy.

Alexander Paraschiy: Based on
the holding’s annual mining plan, it is going to further boost its coal mining
in the coming months to reach average monthly output of almost 2.2 mmt. This is
much more than it produced in 9M19 (1.83 mmt per month, on average), but looks
achievable as it corresponds to its output reached in October-December 2018. If
it boosts coal mining in accordance to its plan, DTEK Energy will become
self-sufficient in coal as its consumption is about 2.1-2.2 mmt (in raw coal
equivalent) in the winter. Improved coal self-sufficiency should improve the
holding’s costs of power generation, having a positive effect on its
profitability in 4Q19.

At the same time, lower average achieved power
prices in 2H19 will likely reduce the company’s profitability in 2019. We
expect DTEK Energy’s EBITDA to fall to USD 700-750 mln in 2019 (from USD 959
mln a year before). Nevertheless, we remain bullish on DTEK Energy’s bonds,
which might benefit from a credit rating upgrade once the holding settles its
outstanding debt issue.