Kemerovo Azot [TP $45; BUY] releases robust FY09 operating results

Event: Kemerovo Azot released FY09 operating results on Thursday. The company’s capacity utilization ratio reached nearly 100% in FY09 and its output of nitrogen fertilizers rose YoY, with ammonia (+5%), urea (+16%) and ammonia nitrate (+2%) showing increases. By contrast, the output of caprolactam dropped by 5% YoY.

View: Due to a gradual price recovery, the utilization of Azot’s capacity reached its highest levels in 4Q09, hence aggregate production figures demonstrated robust HoH dynamics in 2H09. The 5% drop in caprolactam production and a c.40 % drop in its price resulted in a decline of its share in total 2009 revenue to 30% (compared with 50% in FY08). Given Kemerovo Azot’s high capacity utilization ratio and the general price recovery in 2H09, we expect an increase in revenue to $361m (+4% YoY). We also forecast a 90–95% capacity utilization rate and an increase in the prices of fertilizers in 2010-- currently they exceed 2009 average prices by 35%. These factors are likely to boost the company’s 2010 financials in FY10.

Valuation and Action: Kemerovo Azot’s operating results are in line with our expectations and we do not expect significant market reaction on this news. The company trades on a 2010 EV/EBITDA of 3.3x, and is very cheap (60% discount to peers). We reiterate our BUY recommendation for this stock.


Kemerovo Azot’s operating results, 2008-2009

Source: company, OTKRITIE research