On April 12, UTair released its Q107 operating results. The company posted over a 25% y-o-y surge in passenger traffic, which is in line with expectations. We are downbeat on the results of the helicopter unit, down 2%.
Table 1. Trend in UTair’s operating results
| Indicator | Q106 | Q107 | Chng (%) |
| Passenger traffic, th passengers |
421.4 |
527.2 |
25.1% |
| Passenger load factor, mln pkm |
599.8 |
807.7 |
34.7% |
| Flight hours, th hours |
20.8 |
25.3 |
21.5% |
| Cargo traffic, tons |
2,108 |
3,464 |
64.3% |
| Helicopter operations, th hours |
9.1 |
8.9 |
-2% |
Source: Company data
In Q107, the company managed to improve the efficiency of airplane operations which is underscored by nearly a 35% surge in the passenger load factor, while flight hours advanced 21.5%. However, we question the company’s ability to sustain such robust growth. Passenger traffic topped 28% in 2M07 and reduced to nearly 25% in Q107. In our opinion, the March 17 accident in Samara was the reason behind this trend. We believe the effect of this tragedy has not yet played itself out.
Another negative is a certain decline in helicopter operations. At present, the helicopter business is less competitive and much more profitable than transport aviation. For this reason, we believe it would be advisable for the company to primarily develop its helicopter unit.
Overall, all the key indicators underscore ongoing expansion of the company’s airplane operations, which we view as a controversial development strategy. We believe the company should implement its competitive edge with a focus on more profitable helicopter operations. However, until FY06 consolidated financials are released, we reiterate our fair price of UTair at $0.66 per share and we assign them a Buy recommendation with 20% upside potential.
0.244
0.616
