Khartsyzsk Pipe net income falls threefold in 2012

Khartsyzsk Pipe (HRTR UK) reported 2012 net income of USD 33.8 mln (2.9 times lower yoy) on Feb. 26, according to the company’s AGM release. The AGM is scheduled for Apr. 9, with the agenda containing a voting item to approve significant deals.

Roman Topolyuk: The net income result exceeded our expectations. Nevertheless, the yoy plunge reflects a 36% yoy decrease in pipe sales caused by a lack of contracts for pipe deliveries, which was reflected in 3 months in 2H12 of minimum production volumes (3-6 kt per month vs normal 40-60 kt). Once 92% of the 2012 net income for 2012 is distributed (as was the case last year), HRTR will pay a dividend of UAH 0.1 per share, which implies a dividend yield of 12%, compared to our expectation of 10%.

The significant deals item in the AGM agenda gives shareholders, voting against such deals, an option to sell their shares to the issuer at a price that should be no less than UAH 0.8 per share (by our estimate). As the current market price (UAH 0.8 per share) is very close to the implied selling price, HRTR stock will present an arbitrage opportunity once its market price falls significantly below UAH 0.8 per share (refer to our Feb. 19 note for more details).