Daily analyst comments

On April 18 Nizhnekamskneftekhim's management presented at an AGM the company's FY 2007 RAS financials and voiced guidance for 2008. The company's revenue rose 31.2% y-o-y in dollar terms to USD 2.29 bn. Gross profit advanced 21.2% to USD 455.8 mn and operating profit was up 27.7% to USD 275.1 mn. In 2007 net profit increased 30.9% to USD 160.3 mn. Financial results grew on the back of incremental output and petrochemicals sales, high prices for the company's core products and output of new products. On the downside, the company's net margin remained nearly flat, whereas operating and gross margin slightly declined which underscores rapid cost growth.

Table 1. Nizhnekamskneftekhim: FY 2007 RAS financials USD mn

We view the company's financials as neutral and do not expect the results to produce a tangible impact on its market valuations. In our opinion, investors will primarily focus on implementation of the company's investment projects and performance guidance, moving forward. Specifically, Nizhnekamskneftekhim plans to allocate USD 5.3 bn to its company's rollout program, which calls for increasing marketable output to USD 5.5 bn in 2012. As a result of implementation of this program, total rubber output will rise to 750,000 tons, plastic 1.8 mn tons and ethylene 1.6 mn tons.

In 2008 the company plans to complete the upgrade of its ethylene complex and scale up its annual output to 600,000 tons, which would also make it possible to increase propylene output to 250,000 tons and benzol to 220,000 tons. The company is now establishing polyethylene production with 230,000 tons annual output.

Overall, we have an upbeat outlook on Nizhnekamskneftekhim's investment program, which is to increase the company's financial results and enhance the investment appeal of its shares.

The target price of Nizhnekamskneftekhim (RTS: NKNC) is USD 1.44, which implies over 30% upside potential and we assign a BUY recommendation.