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Motor Sich nearly doubles EBITDA, profit in 1H14

Motor Sich nearly doubles EBITDA, profit in 1H14

25 July 2014

Leading CIS aerospace firm Motor Sich (MSICH UK) reported a 21% yoy increase in its revenue to UAH 4.70 bln in 1H14, according to its July 24 regulatory filing. The company reported a 97% yoy increase in its EBITDA to UAH 2.17 bln and 87% yoy growth in its profit to UAH 1.54 bln. The company’s semi-annual profit, thus, exceeded its full-year result for 2013 (UAH 1.32 bln). The company’s semi-annual result implies its 2Q14 revenue improved 45% yoy and 54% qoq to UAH 2.85 bln. Its quarterly EBITDA improved 2.2x yoy and 1.9x qoq to UAH 1.42 bln.

 

Alexander Paraschiy: The company’s financial result is a positive surprise, which will likely be rewarded by the stock market today. The core driver of such a spectacular result is the devaluation of the local currency, which inflated the UAH-denominated revenue of Motor Sich (as most of the contracts are fixed in hard currencies) but still failed to inflate the costs of raw materials. Most raw material costs are also denominated in foreign currencies, but given the long production cycle of an engine (up to nine months), most of the raw materials used for the currently sold engines were purchased before the hryvnia devalued. That said, we should expect COGS growth to catch up in the coming months and hurt Motor Sich’s profitability closer to the end of 2014.

 

During a conference call organized by Concorde Capital, the company’s management assured participants that it should not face any risk of an export ban on its products to Russia. It faces no troubles with spare parts deliveries from its Snizhne Machinery Plant, which is located in the Donbas region’s battle zone. This has prompted us to change our outlook on Motor Sich stock from cautious to bullish. Though, this does not mean that the company is fully insulated from the risks of the Donbas war or worsened business relations with Russia.

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