KSG yields: -50% for grains, +50% for rape, -9% outlook for sunflower

KSG Agro (KSG PW) reported a harvest of early crops at 56.3 kt, +18% yoy, yesterday. The company harvested 42.4 kt of winter wheat (+1.8% yoy), 10.5 kt of barley (flat yoy) and 3.4 kt of rapeseed (up 2.2x yoy). Wheat and barley yields were above its region’s average result and rapeseed yield was 1.5x higher yoy. The company also guided that the yield for sunflower, its key crop, will be 9% smaller this season (vs. -4% yoy expected in Ukraine). KSG said that sunflower prices remain robust in Ukraine, and the company expects a 15%-18% increase in prices over the next six months.

Alexander Paraschiy: The harvest of wheat and barley is 2.5x below management guidance from KSG’s June 2012 presentation (and 1.8x below our forecast). The yield for both crops fell 50% yoy this season, by our estimates. The outlook for sunflower suggests management guidance for the crop will be missed by at least 11% (and our outlook – by 4%). Though the decline in yields was expected for KSG (located mostly in Dnipropetrovsk and Kherson regions, the epicenter of the 2012 drought), its scale is still a negative surprise. Although stronger crop prices will support the company’s operating cash flow, we believe KSG will have to significantly cut its expansion plans for 2012. With the results on hand, we suspend our buy recommendation for KSG, putting the stock under review.