Russian Engine-Building Companies: Back to Life
Stocks of gas-turbine engine manufacturers have long been listed on the Russian equity market, but they have undeservedly seen a lack of investor attention. One of the reasons is heightened interest in other sectors of the national economy in view of faster growth rates. Demand for machine engineering products is a component of investment demand in other industries, which has tangibly increased over the past 12 months. Thus, gas-turbine engine producers hold robust growth potential driven by the following factors:
Development of aircraft-building activities, where turbines are the basis of aircraft engines. At present, active development of both civil and military aircraft industries is under way. The civil aircraft production industry is on the verge of a new boom, starting with the establishment of United Aircraft-Building Corporation. Consequently, demand for civil airplane engines will leap, opening new prospects for engine manufacturers. Also, stable growth is visible in demand for Russian military aircraft, as Russian airplanes are cheaper than foreign models.
Investments in the power utilities sector/b>, with a large portion falling to the heat generation segment, where turbines are used as engines for thermal production. Of all investment programs currently being executed in the country, that of UES is the biggest. Nowadays, energy producers need investments given that fixed assets are highly depreciated and due to robust expansion of the national economy, pushing up the need for additional generating facilities.
Expansion of gas transportation infrastructure/b>, to be more precise, active revamping of gas pumping units, which are equipped with turbines. Gazprom’s investment program calls for sizeable investment outlays, with some funds to be spent on rolling out and upgrading gas transportation facilities.
Among companies engaged in engineering and manufacturing gas-turbine engines, we highlighted the largest fast-growing enterprises, whose shares are fairly liquid and hold strong upside potential. We rate the following companies as a Buy:
According to our estimates, NPO Saturn stocks hold the softest upside potential, but are the least risky investment vehicle, while those of KMPO are marked by strongest upside potential and are the most risky equity play. As regards UMPO, the company’s shares are moderately risky and most attractive in terms of risk/returns.
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Konstantin Romanov
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Sector:
Engineering
Company:
Kazan Motor Building Production Association,
Saturn
All Research Notes >>
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