Ukraine Markets Daily (February 3, 2015)

Market news

  • NBU is to abandon the indicative exchange rate
  • MHP’s poultry production up by 16% y/y in 2014

Market comment

The UX Index was down by 1.5% on Monday, and down by 1.7% in the US dollar terms, while the PFTS index was down by 0.6% in UAH terms. Six out of ten companies in the UX index were down in the UAH terms with the largest decrease in prices observed for CentrEnergo (-3.7%), Avdiivka coke (-2.8%) and Enakievo MP (-2.7%).

On the interbank exchange market, the USD/UAH spot rate was up by 0.2% with the closing price of 16.52 (mid price) on Monday, according to Minfin.com.ua, while the average exchange rate reported by the NBU was 16.15.

Ukraine 5-year CDS were down by 0.3% on Monday.

 

NBU is to abandon the indicative exchange rate

According to the press-release of the National Bank of Ukraine, from February 5th, 2015 the NBU will abandon the indicative exchange rate of foreign currency. Thus, there will be the same exchange rate across the whole market. Nevertheless, the head of the NBU Valeriya Hontareva reassured that the NBU would apply administrative measures if needed.

Our view:

The news is neutral for the Ukrainian economy. From autumn 2014, there were several exchange rates of foreign currency in Ukraine: official exchange rate, interbank exchange rate and exchange rate on the shadow market. Due to restrictions applied by the NBU in order to limit operations with foreign currency, the shadow exchange rate was considerably higher than the official and interbank ones. We can expect that the exchange rate on the interbank market (USD : UAH 16.15) will gradually adjust to the exchange rate, which exists on the shadow market (approximately USD : UAH 20 : 1).

 

MHP’s poultry production up by 16% y/y in 2014

MHP, a leading Ukrainian producer and exporter of poultry meat, published its operational results for 4Q2014 yesterday. The company reported that poultry production volume in 4Q2014 increased by 13% y/y to 142,120 tonnes and in 2014 increased by 16% y/y to 546,500 tonnes, mainly due to the increasing production volumes at the Vinnytsia poultry farm. MHP’s sales volume of chicken meat increased by 6% y/y to 128,670 tonnes in 4Q2014, and by 18% y/y to 525,460 tonnes in 2014. The company also reported that increased production of fodder meal at the Vinnytsia complex led to a 23% y/y increase in export sales volume of sunflower oil in 2014 and 30% y/y increase in 4Q2014. 

The company’s exports of chicken meat grew by 15% y/y to 140,920 tonnes in 2014. MHP noted that since June 2014 the company exported poultry meat to the EU with zero import duty, which resulted in over 16,500 tonnes of poultry exports to the EU (12% of total MHP poultry exports in 2014). 

MHP harvested around 290,000 hectares of land in 2014, producing over 2 mn tonnes of crops (mostly corn, wheat and sunflower), with significantly higher yields than Ukraine’s average.

The company reported that the average chicken price increased by 54% y/y to UAH 23.72 per kg in 4Q2014 and by 25% y/y to UAH 19.99 per kg in 2014 due to substantial share of export and depreciation of local currency during the reporting period. The average price per tonne of sunflower oil decreased by 19% y/y in 2014 and 8% y/y in 4Q2014.

MHP also noted that due to suspension in operations of Shahtarska Nova breeding farm since August 2014, the company had to import hatching eggs, and decided to transform Peremoga Nova broiler farm into a breeding farm. The production of hatching eggs started in December 2014.

Our view:

The news is POSITIVE for the company. Increased production volume and export sales of poultry meat should positively impact the company’s profitability, compensating for the decrease in revenue due to the devaluation of UAH. Moreover, the fact that the company has already covered the shortage of hatching eggs supply by transforming the Peremoga Nova broiler farm into a breeding farm will mean that MHP won’t have the need to rely on imports in future. However, we expect that this had a negative impact on cash flows in 4Q2014 due to additional expenses related to re-equipment, purchases of breeding flock and imports of hatching eggs.

 

Disclaimer

Although the information in this report has been obtained from sources which Empire State Capital Partners believes to be reliable and was collected in good faith, we do not represent or warrant its accuracy, except with respect to information concerning Empire State Capital Partners, its subsidiaries and affiliates, either expressly or implied, and such information may be incomplete or condensed. Nor has the information and/or data been independently verified, and so is provided without further caveat regarding its reliability, suitability for commerce or specific purpose. 

This report does not constitute a prospectus and is not intended to provide the sole basis for an evaluation of the securities discussed herein. All estimates and opinions included in this report constitute our judgment as of the date of the report and may be subject to change without notice. Empire State Capital Partners or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this report, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, or other services (including acting as advisor, manager) for any company referred to in this report and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. Empire State Capital Partners will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This report is confidential and is being submitted to select recipients only. It may not be reproduced (in whole or in part) without the prior written permission of Empire State Capital Partners.

Any recommendations, opinions, forecasts, estimates or views herein constitute a judgment as at the date of this report. This document has been produced independently of Empire State Capital Partners and the recommendations, forecasts, opinions, estimates, expectations, and views contained herein are entirely those of the research analyst(s). While all reasonable care has been taken to ensure that the facts presented herein are accurate and that the respective recommendations, forecasts, opinions, estimates, expectations, and views are fair and well considered, none of the research analyst(s), Empire State Capital Partners or any of its directors, managers or employees has verified the contents of this document and, accordingly, no research analyst, Empire State Capital Partners or any of its respective directors, managers or employees shall be in any way responsible for its contents.