Ukravto’s Net Income up 21 times in 2007

According to preliminary 2007 financial results released yesterday, Ukravto (AVTO: N/R) increased its net income 21-times to USD 346.6 mln in 2007. Inna Perepelytsya: Reported net income ’07 and Management’s expectation on car sales revenue for 2007 (+35% yoy) imply a net margin of 24.2%. We believe that Ukravto’s high margin is a one-off effect of car sale schemes employs with ZAZ (also owned by Tariel Vasadze), which had an exemption from paying VAT on car sales in 2H07. We see Ukravto’s net margins converging with its international peers in 2008 (1.1%-4.5%), also comparable with UkrAvto’s historical level in 2005-2006 (1.6%-4.7%).