Page 124 - RusRPTJan22

December. Cargo volumes were up 3.1% YoY to 107.9mnt during the month, coming in well above RZD’s projected growth of 1.7% YoY. The company is on course to post one of its strongest ever.
The November figures showed cargo volumes up 3.1% YoY to 107.9mnt, and total cargo volumes for January-November were up 3.3% YoY to 1,174.4mnt. The main contributors to the November dynamics were coke (+22.2% YoY to 1.1mnt), timber (+19.2% YoY to 3.1mnt) and ferrous metals (+13% YoY to 6.1mnt), while grain (-31.2% YoY to 2.2mnt), iron and steel scrap (-7.1% YoY to 1.3mnt), and raw and molding materials (-3.2% YoY to 3mnt) saw the largest drops. Volumes of coal, the primary cargo transported on Russian railways, were down 1.6% YoY to 31.4mnt in November, while oil and oil products increased 10.4% YoY to 19.1mnt during the month.
Freight turnover and freight turnover taking into account empty wagon runs were up 3.8% YoY and 3.4% YoY to 226bn tkm and 284.4bn tkm in November, respectively. The growth in RZD’s cargo volumes was well above RZD’s projection of 1.7% YoY. RZD confirmed its growth outlook of 3.3% YoY for FY21 cargo volumes, which implies a 3.1% YoY growth in December.
Globaltrans over the last month, Globaltrans’ GDRs have lost 17%, underperforming the RTS Index by 8pp. We believe this selloff was caused by market-related geopolitical risks, while the railway industry trends remained the same.
We still see strong demand for gondolas translating into growing rates, which are now at RUB1,357/day, double their levels at the start of the year. We expect them to rise another 7-10% in 1Q22F, then revert under the weight of fleet oversupply. This scenario yields a 1H22F annualised DY of 15%, significantly above the Russian average of 9%. Even with RUB1,000/day rates in 2023F, we see the DY at a solid 11%. In our view, there is a positive risk return reward at current price levels. We keep our 12-mo TP of $8.50 unchanged (ETR +29%), and are upgrading our recommendation from Hold to Buy. The company trades at 2022F EV/EBITDA of 4.1x (the 5y average).
Coal hungry. The perfect storm of post-pandemic industrial demand for power and low worldwide inventories caused Europe and Asia to increase coal purchases, driving prices to a peak of $230-250/t in October. Although the situation has stabilised and prices are now $120-150/t, the winter could provide support. For example, Chinese State Grid warns that the balance will be tight until spring. We calculate that coal is relatively cheap now, as the current gas price is equivalent to a coal price of $300-350/t.
124 RUSSIA Country Report January 2022 www.intellinews.com