Page 113 - RusRPTSept20

Meanwhile, adj. net income exceeded both our expectations and consensus on lower income tax (as the result of environmental claim and FX loss) FCFE of $2.4bn was in line with our expectations and slightly ahead of consensus due to lower capex. Indeed, the company decreased 2020 capex guidance form $2.2-2.5bn to below $2.0bn due to weaker RUB$and reschedule of projects due to COVID-19 disruptions (below our $2.1bn forecast). 2021 onwards capex was reiterated, the same as production guidance. With ND/EBITDA of 1.2x (below 1.8x threshold), we expect the company to announce 60% pay-out of EBITDA for 1H20 dividends, which suggests DPS of $0.70/DR and offers 2.5% semi-annual yield Overall, the company believes it can settle its dispute with Rosprirodnadzor over $2.1bn claim adjustment out-of-the court, which might be slightly positive for sentiment. Overall, we treat the results as slightly positive, given better FCFE generation outlook on lower capex.
Russian steel large diameter pipe (LDP) major TMK reported a 2% quarter-on-quarter increase in revenues to RUB56.7bn ($775mn) in 2Q20 under IFRS, but saw Ebitda decline 3% q/q to RUB8.4bn and net profit drop 32% q/q to RUB1.7bn. As reported by bne IntelliNews, TMK previously posted weak operational results in 2Q20, and also faces increased competitive pressure from the merger of two other large pipe-makers, ChelPipe and ZTZ, creating a player with 30% market share. In 2Q20 TMK managed to maintain a stable top line due to the stable performance of the Russian division and improved performance at the European division, BCS Global Markets commented on August 18, seeing the results as largely in line with expectations. Overall, TMK expects pipe sales at the Russian division to remain under pressure in 3Q20, mainly due to continuing adverse market conditions and pre-planned maintenance at key production facilities. However, in Europe TMK expects the gradual recovery in industrial pipe consumption to continue, even as pipe prices are still under pressure. Should market trends remain stable, TMK expects Ebitda in 2H20 to stay at generally the same level as in 1H20, BCS GM notes.
Rusal reported mixed 1H20 results. While net debt was slightly below our expectations, EBITDA and FCFE were weaker than we expected. With negotiations over dividends from Norilsk Nickel ongoing, we expect Rusal to have modest FCFE in 2H20. However, as we anticipate aluminium prices recovering next year, we remain positive on Rusal (12-TP of HKD 5.80, 83% ETR, Buy). Lower EBITDA on revenues, costs post a muted decline. EBITDA of $219mn was marginally (3-4%) below us and consensus due to lower revenues from alumina sales. However, overall we note that it was one of the weakest prints in the company's history due to low aluminium prices. Cash costs of $1,564/t, down 6% y/y, matched our expectation. We note that despite a mix of a 6% weaker RUB$, 11% y/y decrease in spot electricity tariffs and 23-28% y/y fall in consumables (carbon materials and caustic soda), the aluminium segment cash cost was down only 6% y/y due to higher COVID-19 related costs, higher repair & maintenance costs and alumina purchase costs. Modest FCFE. FCFE of $327mn, including a $790mn dividend from Norilsk Nickel, came below our expectations. Indeed, the company recorded negative net operating cash flow ($71mn) for the first time since 2015. The company reported a net working capital build-up of $28mn, against our expectations of a $114mn release, due to the $305mn increase in payables, representing the longest turnover since 2017-18. Elevated capex. The company reiterated its plan to launch the Taishet smelter in 1H21, guiding that until then, capex in 2020-21 would be similarly high, at $1bn.
113 RUSSIA Country Report September 2020 www.intellinews.com