Daily analyst comments

FY06 IAS net profit of ChTPZ Group's pipe division more than doubled y-o-y from Rub 2.54 bln ($100.23 mln) in 2005 to Rub 5.38 bln ($212.31 mln), the company said in a press report. The pipe segment's revenue amounted to Rub 59.59 bln ($2.35 bln) in 2006 compared to Rub 41.8 bln ($1.65 bln) in 2005. The results slightly outpaced the company's guidance.

The report consolidated the results of Chelyabinsk Pipe Rolling Plant (RTS: CHEP), Pervouralsky New Pipe Plant (RTS: PNTZ) and service units Tirus and Metris. The main growth driver for the company's financials was consolidation of consolidation in 2006 of ChTPZ's second service unit (Tirus) in 2006. The point is that the pipe maker's two units (Tirus and Metris) not only sell ChTPZ's products but also supply their clients (as a rule, small regional construction companies) pipes produced by other manufacturers, including Ukrainian, Chinese, etc.

ChTPZ's headline FY06 financials indicators, Rub mln

	2005	2006	2006/2005
Revenue	41,797	59,586	43%
COGS	33,015	45,093	37%
Gross profit	8,782	14,493	65%
Gross profit margin	21.01%	24.32%
Operating profit	4,396	8,235	87%
Operating profit margin	10.52%	13.82%
Net profit	2,054	5,382	162%
Net profit margin	4.92%	9.03%

Source: Company data, Finam estimates

Since topline growth was stronger than costs (43% compared to 37%), the group managed to ramp up gross profit by 65% (from Rub 8.78 bln ($346.48 mln) to Rub 14.49 bln ($571.82 mln)). What's more, gross profit margin climbed from 21% in 2005 to 24.3% in 2006. Effective cost-containment measures enabled the company to scale up operating profit by 87%, from Rub 4.4 bln ($173.63 mln) to Rub 8.24 bln ($325.17 mln) and net profit by 16% from Rub 2.05 bln ($80.89 mln) in 2005 to Rub 5.38 bln ($212.31 mln) in 2006. Thus, the pipe maker's net margin nearly doubled from 4.92% to 9.03%.

At present, the fair price of ChTPZ is $5.56 per share in terms of average industry multiples, which implies 32% upside potential.