Daily analyst comments

On May 21, Pipe Metallurgical Company (TMK) released headline financial indicators for 2006 which slightly overshot our expectations. Revenue rose 15% to $3,384 mln, while costs only rose 7% to $2,350 mln. Net profit shot up 81% y-o-y to $461 mln. It was reported that the company could allocate $138 mln to FY06 dividend payouts which corresponds to 30% of the company's IAS net profit last year.

According to Senior VP for Strategy and Business Development of TMK Vladimir Shmatovich, the company improved its headline financials due to favorable market conditions. Exports and operations of the Romania-based assets accounted for nearly 28% of the company's revenue. He also noted that the company ramped up output of high value-added products.

Table 1. TMK's headline 2006 financial indicators, $ mln

	2005	2006	2006/2005
Revenue	2,938	3,384	15%
COGS	2,192	2,350	7%
Gross profit	746	1 034	39%
Gross profit margin	25%	31%
Net profit	254	461	81%
Net profit margin	9%	14%
EBITDA	532	794	49%
EBITDA margin	18%	23%

Source: Company data, Finam estimates

For the record: TMK is Russia's largest pipe maker. The company includes Volzhsky, Taganrog, Sinarsky and Seversky pipe plants, Orsky Machine Building Plant, TMK-Artrom Pipe Plant and Romania-based metal maker ТМК-Resita. The company is the second largest steel pipe maker worldwide and the third largest producer of seamless pipes for O&G applications (12% of the global market). In 2006, TMK ramped up pipe output 3.2% y-o-y to 3.02 mln tons. In particular, seamless pipe output grew 3.6% to 1.94 mln tons and welded pipes up 2.6% to 1.07 mln tons.

We believe that the company's shares are currently fairly valued by the market.