Page 185 - RusRPTApr21

We note that there has been no official confirmation from either TMK or Chelpipe that a deal might take place. The combined production capacity of TMK and Chelpipe is 1.7mnt/a in OCTG, 2.5mnt/a in LDP and 3.9mnt/a in industrial and line pipes. Together, the companies accounted for 35% of Russian pipes production (as of 2019). In 4Q20, TMK acquired stakes in Truby 2000, and in a casting and rolling complex, for a combined RUB 15bn (USD 0.2bn). TMK is to report its financial results and hold a conference call at the end of this week, and in our view the company might comment on these reports.
TMK has reported its 4Q20 IFRS results. Revenues were up 12% QoQ to USD 780mn (RUB 59.5bn), but headline EBITDA still fell 6% QoQ to USD 94mn (RUB 7.1bn). The bottom line for 4Q20 was at negative USD 11mn (RUB 0.8bn). TMK’s revenues came 4% above our forecast, mainly due to higher than expected sales of welded pipes (they were 22% above our expectations, improving from the depressed levels of the past two quarters). However, this effect was eaten away by the higher cost of sales, so gross profit was nearly in line with us. G&A expenses and other operating expenses, as reported by the company were worse than we had projected, which was the reason behind the 3% miss on EBITDA. The company reported an increase in DD&A and a greater than expected FX loss (USD 15mn vs. our forecast of USD 10mn). As a result, there was a miss on net income as well.
TMK has closed the deal to purchase 86.54% of Chelpipe, Interfax reports, and is required by law to make a tender offer to purchase shares from minority holders that own 13.46% of the company.
Rusal has reported positive FY20 earnings thanks to a larger working capital release. Due to the favourable aluminium market environment, we raise our 12-mo TP to HKD 6.80 on a higher aluminium price forecast, reiterating our Buy recommendation (48% ETR). At the current stock price, we believe the company’s market cap reflects only the value of the NorNickel stake, which we view as unfair given the material improvements in Rusal’s core business on the aluminium price we expect in 2021F.
Revenue, EBITDA in line with consensus. USD 4.55bn revenue for 2H20 was broadly in line with us and the consensus, while EBITDA of USD 639mn came 5% above us due to the lower SG&A costs (in line with the consensus).
Aluminium cash cost drop in 2H20; 2021 growth guidance in line with our expectations. Aluminium cash costs of USD 1,464/t for 2H20 matched our estimates, being down 8% YoY on a weaker rouble and a lower power tariff. Although the company notes inflationary pressures in 2021, it aims to keep the 2021 aluminium cash cost within USD 1,600-1,650/t (up 6-9% YoY).
Strong FCFE. Rusal 2H20 FCFE of USD 427mn, including USD
185 RUSSIA Country Report April 2021 www.intellinews.com