Ukrainian Railway reports strong 1Q17 results

Net revenue at state monopoly Ukrainian Railway (UZ, RAILUA) improved 21% yoy to UAH 17.9 bln in 1Q17, according to its April 27 regulatory filing. Revenue in its key segment, freight transportation, increased 22% yoy to UAH 15.1 bln on 10% higher turnover (58.0 bln t*km) and 11% higher effective freight rate. Its passenger segment also improved as revenue rose 14% yoy to UAH 1.4 bln. An effective rate hike of 53% yoy outpaced declines in passenger turnover by 26% yoy.

UZ’s EBITDA surged 3x yoy to UAH 5.0 bln and bottom line turned positive at UAH 0.05 bln in 1Q17 from negative UAH 2.0 bln a year before. It generated UAH 3.6 bln in operating cash flow (2.4x yoy growth) and increased CapEx almost 7x yoy to UAH 1.3 bln in 1Q17. Its net debt stood at UAH 32.7 bln at end-1Q17, roughly flat YTD.

Alexander Paraschiy: Surprisingly, the blockade of occupied Donbas (Ukraine’s industrial hub), which lasted for more than half of 1Q17, did not cause UZ freight transportation to decline. In our view, the company’s good P&L in 1Q17 may have negative implications, as it may become a good argument for corporate opponents of a further hike in freight rates. The positive result, therefore, does not change our neutral/skeptical view on RAILUA Eurobonds, although we do not rule out some price increase in the bond based on such results.