DTEK reveals 1Q19 operating update

Ukraine’s leading coal and power producer DTEK Group
revealed its 1Q19 production indicators on May 30. Its coal mining improved
1.3% yoy to 6.48 mmt, supply of generated electricity dropped 16.7% yoy to 8.46
TWh and electricity transmission decreased 15.9% yoy to 10.07 TWh, while its
production of natural gas rose 2.7% yoy to 0.41 bcm.

Out of this amount, the Eurobond issuer DTEK Energy
(DTEKUA) produced 5.78 mmt of coal (up 0.4% yoy) and supplied 8.23 TWh of
produced electricity (down 17.2% yoy) in 1Q19. The decline in power generation
was a result of its discontinued lease with two large Kyiv-based heat and power
plants since August 2018.

On a like-to-like basis (excluding Kyiv-based CHPPs),
DTEK Energy’s power output decreased 6.8% yoy in 1Q19. The company also
reported a decrease in its share of power generated from imported anthracite to
12.1% in 1Q19 from 13.2% a year before.

Alexander Paraschiy: DTEK Energy’s 1Q coal mining
results have already been accessible for a long time,
so this release brought no surprise. At the same time, the pace of decline in
DTEK’s power generation (-6.8% yoy in 1Q19, after a 2.0% yoy decline in 2M19), looks
slightly disturbing. On the positive side, the decline in power generation
should be offset by a much better achieved power price in 1Q19. Based on
sector-wide data, the average achieved power price of all Ukrainian thermal
power plants increased 9.3% yoy to UAH 1,922/MWh, and DTEK’s power plants are
likely to enjoy a comparable yoy increase.

That said, we expect DTEK Energy will have strong
1Q19 financials. Though its 2Q results are likely to be worse yoy, we see few
reasons to change our bullish view on DTEKUA Eurobonds.