Page 201 - RusRPTMay21

inventory build-up ahead of the construction season.
Crude steel production, however, was broadly in line with our forecast. The company's realised price lagged the benchmarks and reached $698/t, or 9% below our estimates, although it did show double-digit y/y growth. Given elevated steel prices in 1Q21 and the positive outlook on the steel market for 2Q-3Q21, we expect MMK’s EBITDA to increase 60% q/q to $734mn in 1Q21F. However, due to the working capital build-up, we anticipate FCFE declining 55% q/q to $64mn, which implies a quarterly dividend yield of 1.5%, the lowest among Russian peers. Our unchanged 12-month Target Price of $13.00 implies an ETR of 32%; Buy reiterated.
Crude steel output of 3.3mnt gained 9% y/y, in line with our expectations and broadly unchanged q/q, as the favourable market conditions persist.
Steel products sales were up 6% y/y to 2.9mnt, although that was 5% below our expectations due to a larger inventory build-up ahead of the construction season, which is likely to be reversed in 2Q-3Q21, in our view. As such, we think that the company remains on track to increase its sales 13% y/y in 2021 to 12.2mnt (see our MMK - FY20 earnings; better on costs, earnings to surge ahead in 1Q21, of 2 February for details).
The company’s coal production increased 4% y/y to 1.3mnt, 6% below our expectations due to the challenging mining and geological conditions at the Chertinskaya-Koksovaya mine.
The average realised price was up 24% q/q to $698/t, but lagged the benchmarks and came 9% below our expectations.
On the back of surging steel prices, as well as solid sales volumes, we expect revenues to grow 23% q/q to $2.3bn in 1Q21F. This would be partially offset by higher coal prices, which is the main factor behind the 14% q/q rise we see in integrated slab cash costs. As a result, we expect 1Q21F EBITDA to grow 60% q/q to $734mn. Despite high EBITDA, we see 1Q21 FCFE at $64mn (-55% q/q), as the working capital build-up ahead of the construction season is to offset the gains from higher steel prices. Given the positive outlook on prices for 2Q-3Q21 and low financial leverage (we estimate net debt/EBITDA reaching 0.1x in 1Q21), we expect the company to declare 100% of adjusted FCFE as dividends, which implies $0.16/DR (1.5% quarterly yield).
Severstal has reported robust earnings for 1Q21, beating EBITDA estimates by 6-9% on the absence of any SG&A costs pickup, despite higher
201 RUSSIA Country Report May 2021 www.intellinews.com