Research Notes

According to our estimates, Far East Shipping Company (FESCO) is one of the most rapidly growing Russian transport companies which remains focused on its strategy aimed at establishing a global intermodal operator which will provide the full range of shipping services. In our opinion, FESCO’s robust investment appeal is underpinned by the following factors:

• Demand for container shipping services has remained strong over the past few years due to booming international trade;

• Favorable market conditions and soaring cargo rates translate into higher revenues for transport companies;

• Robust standing in the industry and contracts with large industrial enterprises from all over the world are likely to ensure FESCO’s operational and financial viability in the long-term outlook;

• Promising business expansion and diversification strategy is likely to help the company gain leadership positions in the transport market in the North-Eastern region of Russia;

• Margins in the container shipping segment have been on the rise recently, since the company is bringing efficient state-of-the-art vessels to its fleet;

• Access to affordable financing makes it possible for the company to improve its capital structure and draw the required amounts whenever they are needed.

According to our fair price estimates, FESCO’s shares currently hold 27.2% upside potential, which implies a year-end 2007 target of $0.70. Our recommendation is Buy.

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Vladimir Sergievskiy

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