December 19 OAO KAMAZ released its 2005/06 IFRS consolidated statement. KAMAZ plans to stage an IPO in 2008. Therefore, the company is improving its transparency level and investment profile. The application of international reporting standards is the first step in this direction.
IFRS statement confirmed all the trends that mark development of the company that we noted in the analysis of its consolidated financial statement based on the Russian accounting standards. Nevertheless, there are considerable discrepancies caused by the Russian accounting standards. Because of this, investors have more trust in IFRS statements.
KAMAZ revenue increased 39.7% on higher sales volume and rising selling prices. The prices grew faster than the costs due to rising demand. As a result, gross revenue rose 54.5% y-o-y, gross margin increased 1.88% from 17.75% to 19.63%. We expect the revenue to grow by 36% in 2007.
OAO KAMAZ: key financials of 2005/06 IFRS statement
| | | 2006 | 2005 | Growth |
| Revenue |
Mn. RUB |
71 012 |
50 818 |
39.7% |
| Costs |
Mn. RUB |
57 072 |
41 798 |
36.5% |
| Gross profit |
Mn. RUB |
13 940 |
9 020 |
54.5% |
| Gross profit margin |
% |
19.63% |
17.75% |
+ 1.88% |
| Commercial expenses |
Mn. RUB |
2 967 |
2 410 |
23.1% |
| Administrative expenses |
Mn. RUB |
4 811 |
3 965 |
21.3% |
| R&D costs |
Mn. RUB |
130 |
110 |
18.2% |
| Other net operating expenses |
Mn. RUB |
595 |
48 |
|
| EBIT |
Mn. RUB |
5 437 |
2 487 |
119% |
| EBIT margin |
% |
7.66% |
4.89% |
+ 2.76% |
| EBITDA |
Mn. RUB |
7 644 |
4 872 |
57% |
| EBITDA margin |
% |
10.76% |
9.59% |
+ 1.18% |
| Net profit |
Mn. RUB |
4 140 |
2 742 |
51% |
| Net margin |
% |
5.83% |
5.40% |
+ 0.43% |
Source: Company data, FINAM estimates
In 2006 commercial expenses grew slowly at 23.1%. The low growth of the company's commercial expenses was a result of high prices for KAMAZ's products, its monopoly position in the Russia truck market and low competition of the foreign companies which do not have well developed dealer networks in Russia. The major competitors of KAMAZ trucks are used foreign trucks. However, the foreign truck manufacturers have gradually expanded in the Russian market, therefore, the company's commercial expenses are likely to increases in the future.
The operating profit of the company increased 2.2x, profit margin rose 2.76% y-o-y from 4.89% to 7.66%. The company saw robust growth of the operating profit because several cost items grew slower than the revenue. We forecast operating margin to increase to 9.3% in 2007. The net profit of KAMAZ rose by 51%. Net margin grew by 0.41% from 5.4% to 5.83%. The net profit in the IFRS statement is considerably lower than in the RAS statement. This could be a negative sign for investors.
Based on our estimates and analysis of 2007 forecasts, the fair value of KAMAZ common stock is USD 6.81 per share. This implies 43.2% upside. We assign BUY recommendation to KAMAZ.
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