Kernel sunflower crushing rises 5% in 1QFY21

Ukraine’s leading farmer and oilseed producer Kernel
(KER PW, KERPW) reported a 5.4% yoy rise in sunflower crushing in 1QFY21
(July-September 2020) to 662.6 kt, according to its Oct. 26 trading update.
This was a record-high volume for the first quarter, which was made possible by
a large supply of sunflower seeds in July-August from last year’s record
harvest. At the same time, its sales of sunflower oil decreased 1.7% yoy to
296.2 kt.

The company reported a 56% yoy swelling in throughput
of its seaport terminals to 1.87 mmt in the quarter, driven by an increase of
its transshipment capacity. Its grain export was 2.13 mmt in 1QFY21, which is a
31% gain yoy.

The company’s farming results in the current season
were less exciting, as the yields of its three key crops – corn, sunflower and
wheat – were 12% (expected), 13% and 17% less yoy, which the company attributes
to less favorable weather conditions compared to the previous season. Due to a
weaker crop harvest by Kernel and other farmers in Ukraine, the company’s
volumes of silo intake plunged 36% yoy to 1.25 mmt in 1QFY21.

Alexander Paraschiy: The
company’s spectacular results in oilseed crushing and infrastructure were
driven by large carryforwards of the previous sunflower harvest and increased
port capacities. Meanwhile, as this season’s sunflower and grain harvests will
be weaker in Ukraine, we expect a decrease in physical volumes in crushing, its
silo and trading segments in the coming quarters, as well as pressure on the
company’s margins in these segments.

Another possible risk for Kernel this season could be
failure of some farmers to deliver grains to the company under forward
contracts. Many farmers are choosing to default on the contracts that they concluded
in spring at the forward prices, which are way below the current spot prices,
according to the Ukrainian Grain Association.

All in all, we are likely to see some decrease in
Kernel’s EBITDA this financial year, but we remain neutral on KERPW bonds.