Page 165 - RusRPTMay21

inception.
In 2017, Moscow introduced a renovation programme that targeted the relocation of one million people from 16mn sqm of obsolete housing over fifteen years. A total of 1.3mn sqm had been renovated between the inception of the programme and March 2021, although the disruption to the commercial segment is, as yet, limited.
Large developers provide construction services to the city, with PIK accounting for a leading 39% share in the Moscow renovation project. For 2021, the government scheduled around 1mn sqm, which is comparable y/y. That would be supportive for overall residential volumes in the city and is likely to ensure the capital's outperformance in terms of construction activity, compared with other regions in the medium term. We anticipate final details of the timing of the recently conducted tenders for new contracts while its influence on the commercial segment sees upside risks upon the acceleration.
In our model, we factor PIK’s volumes to surge 1.7x over five years to 4mn sqm while the contribution of construction and fee development increases from 15% to 25%. We note that the segment brings decent profitability and in 2020 the gross margin stood at 17% (vs. 29% for own development plots). We consider PIK’s pipeline to be the most aggressive in the sector, while the recent execution track record is upbeat. The stock demands P/NAV of 1.0x and offers a dividend yield of 5%, which we consider to be appealing.
Samolet Group has released upbeat 1Q21 and 2020 results. Residential sales surged 33% YoY to RUB 18.4bn in 1Q21, leveraging higher prices, while volumes were flat YoY (matching PIK’s results).
For 2020, Samolet disclosed revenues of RUB 60bn and EBITDA of RUB 11.3bn, 10-12% ahead of our model. For 2021, the company guidance on volumes is overly upbeat, in our view, as an annual uplift of 49% YoY now requires a 65% YoY higher performance for 2Q-4Q21, while EBITDA implied a strong start, going up 2.5x YoY in 1Q21 vs. the 2x YoY raise anticipated.
The latter receives prime support from revenue booking (up 36% YoY in 1Q21) and profitability (up 10pp YoY to 23%) as prices went up and the pipeline accelerated after last year’s lockdowns. In our coverage, Samolet offers the most rapid development profile and one of the most appealing exposures, with P/NAV of 0.4x amid the 60% surge in the share price since the IPO. As a result, our unchanged 12-month Target Price now implies an ETR of 10%, so we are downgrading our recommendation from Buy to Hold, leaving our forecasts intact.
165 RUSSIA Country Report May 2021 www.intellinews.com