Luhanskteplovoz output drops 66.5% yoy in 2009

Luhanskteplovoz’ (UX: LTPL UK) production declined to UAH 429.7 mln in monetary terms in 2009, 66.5% down yoy, according Interfax yesterday. The company produced 36 diesel locomotive sections for Russian Railways, 2 electric locomotives for Ukrzaliznytsya (ordered in 2008) and spare parts totaling UAH 22.2 mln (5% of total output). Management said all new orders in 2009 came from Russian Railways, and that Ukrzaliznytsya did not place any new orders. Yegor Samusenko: We view Luhanskteplovoz’ depressed production in 2009 as temporary and expect recovery in 2011, with 2010 being as dark as 2009. We expect recovery in demand for locomotives; cargo railway transportation growth in CIS started in 2H09. This already led to an uptick in orders for cargo railcars: Ukrainian producers beat their 2005-08 monthly average output in December 2009. For Luhanskteplovoz, we expect a lag in demand for two reasons. First, locomotives are purchased by state monopolies while demand for railcars is coming mostly from private rail operators. Russian Railways has not been able to increase its CapEx plan for 2010, despite transportation growth. The second reason revolves around the reprivatization of the 75% stake in Luhanskteplovoz: we think Russian Railways will delay placing orders with the company until Transmashholding officially recovers its ownership of the stake.