Research Notes

Favorable methanol market conditions in conjunction with an expansion of output across the entire product range have had a positive effect on the financial performance of OAO Metafrax in 2007.

However, we strongly believe that the current share price of OAO Metafrax does not adequately take into account possible growth of the company's revenue on the tremendous upsurge of methanol prices in Q4 which is to be the most profitable quarter in a record price setting year.

• In 2007 the company shows increased financials. The revenue of Metafrax in nine months of 2007 saw a 43.1% y-o-y increase to USD 207.5 mn, EBITDA grew 75.9% to USD 75.3 mn and net profit surged to USD 46.4 mn (122.3% y-o-y growth). Higher output and favorable methanol market conditions were the major drivers which had an impact on the financials. The situation will not change in the foreseeable future. Therefore, in Q4 Metafrax is to considerably improve its financial indicators. We forecast that in 2007, the company's revenue is to stand at USD 303.5 mn and the net profit is to reach USD 77.9 mn.

• Metafrax has leading positions in methanol production in Russia. The company accounts for approximately one quarter of the total Russian methanol output.

• The management of Metafrax has consolidated capital and intends to increase its share to 60%. This would have a positive effect on the company's stocks in the mid term. In the long term this could be preparation for a public offering.

• The company's development strategy is to increase the market share of methanol processing and products with higher added value. This policy would reduce the company's exposure to price fluctuations and would strengthen its positions in the market.

• Based on the 2007 forecasts the company's multiples P/E and EV/EBITDA are at 5.7 and 3.1. These values are below its peers' ratios in the developed markets (P/E=12.3 and EV/EBITDA=7.1) and from emerging markets (P/E=16.2 and EV/EBITDA=10.4), which imply a strong upside potential.

Based on our estimates and the derived multiples, the fair value of Metafrax is USD 2.40 per share with a 72% upside. We assign a Buy recommendation for the company's shares.

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Michael Frolov

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