On December 20 OAO Chelyabinsk Zinc Plant (ChZP, RTS: CHZN), the largest Russian producer of high quality zinc and zinc alloys announced 9M 2007 IFRS consolidated financials. According to the report, the company's earnings came in at USD 450 mn, or 18% up y-o-y. However, net income amounted to USD 69 mn, which is 13% lower than in the same period 2006.
In January-September 2007 Chelyabinsk Zinc Plant produced 122,676 tons of SPECIAL HIGH GRADE zinc, or 11% up from 110,178 tons in 9M 2006. The company's sales amounted to 109,494 tons, or 10% higher than 99,953 tons in 9M 2006. The metal maker's domestic sales accounted for 48% or 52,451 tons of the company's aggregate supplies in 9M 2007 that ended on September 30. In 9M 2006 ChZP sold 60,325 tons in Russia and exported 39,628 tons of zinc and zinc alloys. The company therefore managed to significantly scale up sales due to incremental output.
According to the report, sales climbed to USD 450 mn, or up 18% y-o-y from USD 382 mn in 9M 2006. Growth drivers included higher zinc prices on LME, with the average zinc price climbing from USD 2,965.50 per ton in 9M 2006 to USD 3,451.70 per ton in 9M 2007, and stronger volumes of zinc sales in kind. The company's consolidated revenue for the period also includes USD 12.30 mn or 3% of aggregate earnings from lead concentrate sales by TOO Nova Zinc, up from USD 5.10 mn in 9M 2006. This metric also includes USD 23.10 mn or 5% of aggregate revenue from sales of associated goods, such as sulphuric acid, cadmium and indium, up from USD 16.80 mn in 9M 2006.
Table 1. ChZP's Key Financials: 9M 2007, USD mn
| | 9M 2007 | 9M 2006 | 9M 2007/ 9M 2006 |
| Revenue |
450 |
382 |
18% |
| COGS |
327 |
236 |
39% |
| Gross profit |
123 |
146 |
-16% |
| Gross profit margin |
27.33% |
38.22% |
|
| EBITDA |
126 |
128 |
-2% |
| EBITDA margin |
28.00% |
33.51% |
|
| Net profit |
69 |
79 |
-13% |
| Net profit margin |
15.33% |
20.68% |
|
Source: Company data, Finam estimates
COGS rose USD 91 mn to USD 327 mn in 9M 2007 from USD 236 mn in 9M 2006. This mostly came on the back of higher raw material and consumables prices due to higher zinc concentrate prices, and also higher repair and maintenance expenses. COGS outpaced revenue, 39% vs. 18%, lowered gross profit 16% to USD 123 mn and depressed margins. Gross profit margin plunged nearly 11% to 27.33% from 38.22% in the year-earlier period. We are downbeat on the company's cost-control efforts. In our opinion, the metal maker is unable to retain costs at least in line with revenue.
The zinc producer's net profit reached USD 69 mn in nine months ending September 30, 2007. This is 13% lower than USD 79 mn in the same period last year. An ongoing decline in zinc prices on LME and a spike in COGS which significantly outpaces earnings growth will take a toll on the company's FY 2007 financials.
At present, the company's fair price based on the industry average multiples is to be around USD 15.20 per share. The upside potential is 30%.
0.553
1.6
