Ukrzaliznytsya plans to renew passenger railcar purchases

South-West Railways, part of Ukraine’s state-owned railway monopoly Ukrzaliznytsya, announced a tender for 21 passenger railcars, Interfax reported yesterday. Yegor Samusenko: Historically, Ukrzaliznytsya has placed orders for passenger railcars domestically, and Kryukiv Wagon (UX: KVBZ UK) is the only local producer of passenger railcars. The expected volume of the contract is not significant (~USD 15 mln, or 3% of Kryukiv Wagon’s 2010E revenue), though this order for passenger cars is the first to be made by Ukrzaliznytsya since 2008. Given that Ukrzaliznytsya’s passenger fleet is heavily aged (half of all its passenger cars are older than the normal service life of 28 years), we believe that passenger car segment could have considerable potential for Kryukiv Wagon, which could contribute up to 40% of revenue and 60% of EBITDA over the long term. However, current financing difficulties at Ukrzaliznytsya and low tariffs for passenger transportation makes us skeptical about Ukrzaliznytsya’s ability to speed up passenger railcar replacement in the short term. For now, we maintain our conservative view on the segment for Kryukiv Wagon.