Page 146 - RusRPTAug21

EBITDA, of 35% y/y, we calculate. Coupled with a possible working capital release, this yields a 17% FCF and dividend yield.
Capex might accelerate in 2022-23. During the conference call, management admitted, that the capex programme planned for 2023+ might be brought forward, with a possible capex increase in 2022-23 to above $1.1bn.
Buy reiterated. We still assume that global steel and raw materials prices will decline to the mid-cycle level in 2023F, but now expect the drop to be gradual over 2022F. Hence, we increase our 2022F HRC FOB Black Sea price assumption to $700/t, which boosts our 2022F earnings (Figure 2). We roll over Target EV/EBITDA to 2022F, leaving our 12-month Target Price of $16/DR unchanged. We note that even under such a FOB Black Sea price (-25% from spot), we are 60% above the 2022 consensus on EBITDA. With our new 12-m fwd steel price forecast, we expect MMK to offer a 35.8% 12-m fwd dividend yield, the highest among Russian steel peers.
Evraz has reported a neutral 2Q21 trading update, as steel volumes matched our expectations but coal volumes were temporarily below due to planned maintenance at the mining stage.
Nevertheless, the company expects volumes to recover in 3Q21, while we continue to forecast a robust 1H21F: EBITDA to almost double HoH to $2.1bn, and rapidly declining leverage enabling a robust dividend payment, which we estimate at an 8% yield (semi-annual). The results are due to be reported on 5 August, and we intend to focus on management’s comments on long steel market fundamentals, the achievement of capex guidance in 2021 and the update on the coking coal demerger deal.
Steel division results match expectations. Crude steel production was down 1% q/q to 3.37mnt, slightly below our expectations, as the guided pick-up in Russian assets was offset by a 16% q/q fall in North America to 415kt due to outages (against the earlier guidance of flat output). At the same time, sales volumes matched our expectations at 3.24mnt thanks to higher semis sales. Coupled with the as-expected 21% q/q rise in the average steel price to $707/t, we continue to forecast robust results from the steel division in 1H21. Guidance on 3Q21 steel production is mixed, as a slight decrease in pig iron output in Russia on planned maintenance is to be offset by recovery in North America.
Coal volumes underperform on maintenance. Coal production dropped 13% q/q to 3.38mnt, and although this was 2% higher y/y, it fell 14% short of our expectations. This was driven by temporarily lower mining volumes at Raspadskaya and Alardinskaya due to longwall repositioning. As such, the company plans to raise output in 3Q21 and we believe the 25mnt coal mining volume guidance in 2021 is still achievable. As the result of lower mining volumes and logistical constraints on the railways in the Russian Far East, coal concentrate sales volumes also fell 15% short of our expectations.
146 RUSSIA Country Report August 2021 www.intellinews.com