Ukrzaliznytsia revenue rises 11%, gross profit 12% in 9M17

Net revenue at Ukraine’s railway monopoly
Ukrzaliznytsia (RAILUA) rose 11% yoy to UAH 55.52 bln in 9M17, according to consolidated
abridged financials published on Nov. 10. The key revenue driver was proceeds
from cargo transportation, which increased 8% yoy to UAH 43.19 bln, which was
the result of freight rates growing 15% since a May 2016 hike and a 3.2% yoy
increase in freight turnover (to 141.5 bln t*km). At the same time, the amount
of goods shipped by the company decreased 1% yoy to 250.9 mmt in 9M17.

Better average freight rates allowed the company to
boost its profit in 9M17: gross profit improved 8% yoy to UAH 4.58 bln and
operating profit was UAH 3.48 bln (up from negative UAH 0.15 bln a year ago).
Its bottom line also turned to positive UAH 0.08 bln from negative UAH 4.98 bln
in 9M16.

Ukrzaliznytsia’s EBITDA, based on our calculations,
improved 8% yoy to UAH 14.72 bln in 9M17, while operating cash flow before
working capital changes advanced 9% yoy to UAH 15.11 bln. Its net debt
decreased 10% YTD to UAH 30.94 bln as of end-9M17.

Alexander Paraschiy: The
company’s 9M17 results imply worsening in its key operating indicators in 3Q17
(freight turnover fell 2% yoy and volume of goods shipped fell 6% yoy), which
is a worrying signal. Also the company showed slightly worsened profits in the
quarter (EBITDA fell 9% yoy), which was a result of sticky yoy freight rates
and cost inflation. That will definitely change in 4Q17 as the company will
enjoy a 15% increase in average freight rates as of November. That should allow
Ukrzaliznytsia to slightly improve its annual EBITDA in 2017 from the previous
year. All in all, we remain neutral on RAILUA bonds.