Kernel crushing volumes surge 41% in 4Q, exceed FY17 guidance

Ukraine’s largest sunflower oil producer and grain trader
Kernel (KER PW) boosted sunflower seed crushing volumes by 5.7% qoq (40.5% yoy
growth) to 909 kt in 4QFY17, according to an operation update published on July
20. Bulk oil sales decreased 4.1% qoq (but 34.9% yoy growth) to 281 kt in 4Q17.
Grain sales in 4Q17 fell 31.1% qoq (but increased 28.6% yoy) to 957 kt. Export
terminals throughput slid 11.3% qoq (42% yoy grwoth) to 1.4 mmt in 4Q17.

Meanwhile, FY2017 crushing volumes rose 10.2% yoy to
2.96 mmt as the company filled its seed capacity in a deficit market. As a
result, the company maintained nearly full capacity utilization of its crushing
facilities.

Bulk oil sales gained 10.1% yoy to 1.08 mmt in FY2017
due to high crushing volumes. In FY2017, grain sales increased 14.8% yoy to 5.0
mmt as a result of debottlenecking of the company’s handling and export
infrastructure.

Andriy Perederey: The
company’s crushing volumes were higher than its initial guidance of 2.9 mmt.
Its daily average crushing volumes rose 10.5% yoy due to strong results in the
last two quarters (3Q and 4QFY17), which have been otherwise historically
weaker than the second quarter of each financial year.

On the other hand, despite the strong operating
results, we are keeping unchanged our expectation about the company’s FY2017
EBITDA being in the range of USD 325-335 mln (compared to USD 346 mln in
FY2016).

We also note that the company’s land bank expansion
may improve significantly its profit from farming operations in the next financial
year. We retain our Buy recommendation on Kernel stock, with a neutral view of
its bond.