MHP EBITDA slides 1% yoy in 1H18

Net revenue at Ukraine’s largest poultry producer MHP
(MHPC LI, MHPSA) rose 15.7% yoy USD 693.8 mln in 1H18, according to its Aug 23
report. Its revenue from sales of poultry meat increased 25.1% yoy to USD 478
mln on rising prices (21.1% yoy in both USD and UAH terms) and volumes (1.6%
yoy).

The company’s EBITDA slightly decreased by 1.1% yoy to
USD 263 mln, while company didn’t received state subsidies in 1H18. Net of
state subsidies, the company’s EBITDA advanced 8.6% yoy in 1H18. MHP’s
operating cash flow before working capital changes declined 4.3% yoy to USD
187.2 mln, while net cash flow from operations increased 25.8% yoy to USD 80.2
mln in 1H18.

MHP’s CapEx was USD 126 mln (vs. USD 44 mln in 1H17)
and was mostly invested to continue building the second phase of the Vinnytsia
poultry factory. Its net debt-to-LTM-EBITDA ratio was 2.59x in 1H18, compared
to 2.44x a year ago and 2.25x a half-year ago.

In 2Q18, MHP’s total EBITDA crept up 0.6% yoy (or
95.5% qoq) to USD 174 mln, while without government grants total EBITDA rose
13.5% yoy. While the company’s EBITDA from its poultry segment decreased 9.4%
yoy (or flat qoq) to USD 77 mln, EBITDA from its farming segment improved 16.9%
yoy to USD 104 mln in 2Q18.

MHP also reported the results of its winter crop
harvest. Its winter wheat yield climbed 3.3% yoy (or 75% higher than the
average Ukrainian yield this season) to 6.3 t/ha, while its rapeseed yield rose
2.7% yoy to 3.8 t/ha (or 40% higher than average yield this season).

Andriy Perederey: The
company’s EBITDA of USD 154 mln from its poultry segment was lower than our expectations of USD 174 mln
in 1H18 due to the company’s focus on exports that pushed up selling costs
(SG&A increased 28.3% yoy to 46.4 mln in 1H18).

At the same time, MHP posted solid results even
without state subsidies. High poultry prices, strong farming results in its
winter crops and favorable weather conditions for its spring crops support our
view that the company will have the ability to generate EBITDA of USD 470-480
mln in 2018. So we remain bullish on MHP stock and neutral on its Eurobonds.