Ruzkhimmash has released its annual report for FY 2007, which outlines the company's plans for FY 2008. The company intends to raise its revenue by more than 60% to RUB 14 billion, or USD 596 million, due to a 71% increase in the production of hopper cars, a 2x upturn in the production of gondola cars and container platforms and a 10x rise in the production of automobile platforms.
This news should have a positive impact on the company's fundamental value. Growth of production volumes should boost the utilization of the plant's manufacturing capacities and improve the company's revenue and profit. In FY 2007, Ruzkhimmash net profit margin amounted to just 2.1%. The upturn in revenue and order volume is related to a wagon fleet renovation program being implemented by Russian Railways (RZD) and private transportation companies. By 2030, RZD plans to spend a total of RUB 4 trillion on rolling stock renovation. We believe that Ruzkhimmash's growth rate will remain high due to an excess of freight-car demand over supply.
In line with our estimates, the fair value of Ruzkhimmash is USD 2,394 per share, which implies a Buy recommendation.
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