On January 31, 2008 KuibyshevAzot released FY 2007 operating results. The company stated output rose across the board in 2007. Mineral fertilizer output amounted to 400,500 tons, up 13%. This amount includes 495,600 tons of ammonium nitrate, up 10.7%, 301,000 tons of carbamide, up 17.5% and 440,500 tons of sulphate ammonia, up 13.7%. Ammonia output grew 12.7% to 570,000 tons and caprolactam production rose 13.6% to 167,000 tons.
Output of high value-added products also grew y-o-y in 2007: polyamide 6 2.2-fold to 72,200 tons, industrial thread 18.7% to 4,900 tons and cord fabric 47.1% to 3,700 tons. The company attributes production growth to the implementation of a number of projects, with the most important being the commissioning of the third stage of polyamide-6 output. As a result, the company became the leading polyamide-6 maker within Russia and the CIS. In 2007 the company accounted for 57% of domestic polyamide-6 production.
Table 1. Kuibyshevazot: FY 2007 operating results, mn tons
| Product | 2006 | 2007 | 2007/2006 |
|---|
| Ammonia | 506.0 | 570.0 | +12.7% |
| Ammonium nitrate | 447.5 | 495.6 | +10.7% |
| Ammonia sulphate | 387.5 | 440.5 | +13.7% |
| Carbamide | 256.0 | 301.0 | +17.6% |
| Caprolactam | 147.0 | 167.0 | +13.6% |
| Polyamide -6 | 32.2 | 72.2 | +124.2% |
Source: Company data, Finam estimates
The aforementioned output metrics for caprolactam, ammonium nitrate and carbamide are a record high for the company. Carbamide output grew thanks to restructuring of the second evaporation line that ramped up annual capacity of the production unit by 3%. The new equipment at the ammonia unit made it possible to raise daily output of the product to 1,740 tons. This level is currently the highest in Russia. At the caprolactam unit measures were implemented which helped boost output, reduce feedstock consumption, improve environmental and industrial safety.
We are upbeat on the company’s FY 2007 results and we can expect the chemical producer’s financials to rise significantly. According to preliminary data, marketable output amounted to RUB 17.20 bn (USD 673 mn) in 2007, or up 35.2% y-o-y. Sales profit margins grew from 7.1% to 19.5% and net profit reached RUB 1.95 bn ($76.30 mn), or 3.3-fold higher y-o-y. The released data are average 3.5% higher than our FY 2007 forecasts of revenue at USD 649 mn and net profit at USD 73.70 mn.
Robust growth of the company’s financials is attributable to favorable conditions on key target markets and significant incremental output. The company achieved it due to accomplishment of investment projects intended to upgrade and expand production facilities. These projects call for systematic upgrade of fixed assets, retooling and implementation of advanced technologies.
In our opinion, the company’s released operating and financial results that underscore its dynamic growth are expected to prop up KubyshevAzot stock valuations.
Our estimated target price of KuibyshevAzot (RTS: kazt) is USD 3.74 per share which implies over 50% upside potential and corresponds to BUY recommendation.
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