DTEK Energy decreases coal output 1%, increases power output 4% in 1H18

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) mined 11.43 mmt of coal in 1H18, according to the DTEK Group
regulatory report released on July 26. This is 1.2% less yoy on a like-to-like
basis. DTEK Energy’s power generation units supplied to the wholesale market
17.46 TWh of electricity in 1H18, or 3.7% more yoy. The increase was mostly a
result of higher power output by thermal power plants burning hard steam coal
(available in Ukraine) which increased 15.3% yoy to 13.57 TWh. The grid
companies of DTEK Energy transmitted 22.12 TWh of electricity in 1H18, or 1.5%
more yoy. The holding imported to Ukraine 1.49 mmt of coal (up 128% yoy), of
which 0.72  mmt (up 54% yoy) was delivered from its related Russia-based
mine.

DTEK Group’s units that are not consolidated by
Eurobond issuer DTEK Energy performed in the following way in 1H18: the
renewable energy division generated 0.34 TWh of electricity (up 19.0% yoy),
Russia-base coal mine produced 1.46 mmt of coal (up 7.6% yoy) and the natural
gas unit produced 818 mcm of gas (down 2.0% yoy).

Alexander Paraschiy: Based on
DTEK’s semi-annual results, we calculate it produced 1.81 mmt of hard coal in
June (up 1% m/m on an average daily basis). Its mining result looks
disappointing, given DTEK’s earlier declared plan to increase coal mining in
Ukraine by more than 7% yoy in 2018. To reach
this target, the holding would have to increase its 2H18 mining by over 15%
compared to 1H18 and 2H17, which does not look achievable. Most likely, DTEK
Energy’s coal production will not exceed 23.5 mmt in 2018, which would be 2.5%
growth yoy. DTEK Energy’s electricity production will likely increase by the
same 2-3% yoy in 2018.

Higher achieved electricity rates enjoyed by DTEK’s
thermal power plants are likely to fully cover the holding’s costs inflation,
allowing DTEK to keep the EBITDA margin at the previous year’s level in 2018.
Keeping in mind our expectations of a slight increase in all P&L indicators
this year, we confirm our neutral view on DTEKUA Eurobonds.