Kernel crushing volumes fall 6.5% yoy in 1H FY19

Sunflower seed crushing volumes at Ukraine’s largest
sunflower oil producer and grain trader Kernel (KER PW, KERPW) fell 6.5% yoy to
1.36 mmt in 1H FY19 (July-December 2018), according to its operational update
published on Jan. 21. Kernel’s total oil sales increased 8.2% yoy to 776 kt,
while bottled sunflower oil sales were almost flat yoy at 30.0 kt in 1H FY19.
The company’s grain sales nearly tripled yoy to 5.86 mmt due to strong trading
volumes from Ukraine (66% yoy increase to 3.13 mmt) and physical trading
volumes through Swiss-based company Avere.

In 2Q FY19, the company’s sunflower seed crushing
volumes increased 3.3% yoy to 940.5 kt (or a 2.2x qoq jump). Bulk oil sales
grew 28.9% yoy to 342 kt, or 8.8% qoq decrease. The company’s grain sales surged
2.4x yoy to 2.86 mmt in 2Q19, or a 1.1% qoq plunge. Its export terminal
throughput increased 4.3% yoy (or a 8.2% improvement qoq) to 1.72 mmt in 2Q.

Andriy Perederey: Based on
the provided results, we see that the company’s EBITDA will be stronger yoy in
1H FY19. We estimate Kernel’s 1H FY19 EBITDA will be about USD 185-190 mln vs.
USD 123 mln a year ago, with the key growth driver to be its trading segment.
We also expect an improvement of Kernel’s sunflower oil EBITDA margin to 40-42
USD/t in 2Q FY19, from 39 USD/t in 1Q. We also see the company’s oil
inventories having risen in 2Q FY19, while destocking will result in an
increase in the company’s 3Q FY19 P&L. All in all, we maintain our neutral
view on KERPW bonds.