Ukrainian Railways expects record-high freight revenue in 4Q20

Ukrainian Railways (RAILUA) reported on Dec. 4 that it
is expecting UAH 17.6 bln of revenue from freight transportation services in
4Q20, which is a record-high quarterly result. The company also reported that
its freight transportation revenue was UAH 16.6 bln in 1Q20, UAH 14.6 bln in
2Q20 and UAH 16.3 bln in 3Q20.

Freight transportation is the company’s only
profit-generating segment, which usually covers all the losses of other
segments. It also accounts for the vast majority of its revenue, or over 80%.
Its 1H20 revenue from freight transportation was UAH 30.9 bln, or 16% less yoy,
according to Ukrainian Railways’ interim accounts.

Alexander Paraschiy: The
company’s guidance imply that in 2H20, it will be able to generate freight
revenue of UAH 33.9 bln in 2H20, which will be a 10% decline yoy. Its annual
freight revenue will be about UAH 65 bln, or 11% less yoy. Despite its
announced record-high freight revenue in 4Q20, the company’s 2H EBITDA will
likely suffer significantly on a yoy basis.

In particular, we estimate its annual 2020 EBITDA
won’t exceed UAH 10.5 bln, while its net debt at the end of the year will
likely be more than UAH 34 bln. That means its net debt / EBITDA ratio as of
end-2020 will exceed its incurrence covenant on Eurobonds of 3.0x.
Nevertheless, we remain neutral on RAILUA bonds.