Page 202 - RusRPTApr23

the last report’s assumption.
TP raised primarily on weaker and higher steel prices. Our DCF-based TP for MAGN increased by 15% to RUB63/sh versus RUB55/sh. As a result, the stock has 55% upside potential with BUY recommendation.
BCS have revised Mechel’s target price upwards by 30% to RUB650/sh. from RUB500/sh. The company retains our Buy recommendation on weaker and higher coking coal prices.
Focus on coal business expansion and deleveraging. We expect the miner to keep cutting its debt burden mainly thanks to coal segment expansion, which should be a strong catalyst for the stock. Meanwhile, its steel segment looks also stable with the bet on the domestic market, performing well on the back of upcoming construction season. We do not expect dividends from the company in near-term as we expect Mechel to prioritize further debt reduction and capex.
Coking coal supply ramp-up, deleveraging. Mechel has capacities to increase coal business and exports to Asian markets. Recent news on ramp-up of coal production at Yakutugol by 50% in 2024 is expected to add 20% to Mechel’stotal coal output.
Longs price upside in Russia to last longer. Recent rebar price growth (+24% for CPT Central Russia in 3 months) will continue as the construction season starts. Long products prevail in Mechel’s steel revenues (57% of in 2021), helping it to benefit from upcoming increase in domestic prices.
Decline in coal prices. BCS believes this case is unlikely in M-T as China’s economy starts accelerating and steel sector may perform well. Yet, the restoration energy shortfall in China seen earlier may result in some restrictions of steel output and lower demand for coal.
Weaker, high export coal/local steel prices supportive. BCS improved Mechel’s financials S-T outlook in light of depreciation, as well as higher export coal and domestic prices expecting resilient demand in Russia and China’s steel sector activation.
TP upped amid prices up and down. BCS increase DCF-based TP for MTLR and MTLRp grew 30% each to RUB650/sh vs RUB500/sh, with the highest upside across M&M names (more than 4x for both names). Note, the company’s P/E is way too low (less than 1x), while dividends are unlikely though.
202 RUSSIA Country Report Russia April 2023 www.intellinews.com