Daily analyst comments

On September 12, Natalya Togatova, director of the GAZ group's Strategic Planning Department, stated the company planned to start producing a new generation of commercial vehicles on the Maxus chassis, to the tune of up to 300,000 units a year. The group's new Gazel-3 project provides for the establishment of a new generation of commercial vehicles with a carrying capacity of 2.8 to 5 tons. Production is scheduled to take four to five years to set up.

We consider plans to set up production of a new commercial vehicle to be an upbeat event for the company. The market segment for inexpensive commercial vehicles is approaching saturation point and in order to retain its current market share of 50%, the company will have to enter other segments for commercial vehicles. Development of a commercial vehicle on the Maxus chassis will allow the company to sell its products at competitive prices, thereby making full use of its new chassis. The company will be in a position to expand its sales on the market for mid-capacity commercial vehicles; something the company is currently developing. This will allow GAZ to cut its recoupment period for the project.

On the downside, we should note that the vehicle may take four or five years to develop, during which time the market may be divided between the company's rivals, as a result of which the company may face problems entering the market. According to our estimates, the target price for one common share in the GAZ group should be USD 283.7 as of year-end 2009, which implies an upside potential of 146.7% to the current stock valuations and corresponds to a BUY recommendation. The target price of one pref is 156.0, with an upside of 102.6%. Our recommendation is to BUY these shares too.