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雷达卡
Russian Metals & Mining
PTs cut on poor outlook. Cost advantages a boon for
exporters.
Steel
Yuriy A VlasovAC
(7-495) 967-7033
yuriy.a.vlasov@jpmorgan.com
J.P. Morgan Bank International LLC
Summary Ratings and Estimates
Company Price Rating Price Target PT End Date Metric Current FYE Next FYE
Evraz Group SA ($) 6.50 OW ($) 20.00 Feb-10 Adj. EPS ($) 11.20 ($) 3.75
prior ($) 33.00 Sep-09 ($) 12.91 ($) 5.91
Magnitogorsk Iron & Steel Works OSJC ($) 0.15 N ($) 0.50 Feb-10 Adj. EPS ($) 0.19 ($) 0.08
prior Oct-09 ($) 0.20 ($) 0.11
Severstal OAO ($) 2.40 UW ($) 5.30 Feb-10 Adj. EPS ($) 3.02 ($) 0.41
prior Oct-09 ($) 3.19 ($) 0.61
Raspadskaya Coal Company ($) 0.82 N ($) 2.00 Feb-10 Adj. EPS ($) 0.70 ($) 0.12
prior Dec-09 ($) 0.58 ($) 0.21
Source: Company data, Reuters, J.P. Morgan estimates. All prices as at 22 Jan 09 except for Severstal[21 Jan 09].
See page 35 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies
covered in this report, at no cost to them, where such research is available. Customers can access this independent research at
www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.
Russian steel output dynamics, y/y
%
15%
-7%
-25% -40%
-20%
0%
20%
2008E 2009E 2010E
Source: J.P. Morgan estimates.
Downside risks to our PT and rating:
-Falling demand for steel and coal
-Low pricing due to excess of steel
offered
-End of the state financial support
-Rising cost of debt and credit
unavailability
-Protective measures for the Russian
steel at export market
Upside risks to our PT and rating:
-Strong global recovery in steel and
coal demand
-Growing cost differentiation between
domestic and export prices
-Rapid recovery of the domestic steel
demand.
• Cautious outlook for 2009, partial recovery in 2010. 2009 EPS are down
to -57-86% (from -43-81% y/y) reflecting worsening industry fundamentals.
Partial recovery in earnings is expected in 2010 with EPS up 12-63% y/y.
The view is based on 2009 Russian GDP decline of -1% y/y, (3.5% y/y in
2010) and RUB/$ average exchange rate of 35.3 in 2009 (34.8 in 2010).
• 2009 revenue to decline by 41-54% y/y on weak volumes and falling
prices. We see a 25% y/y drop in domestic steel output in 2009. As steel
prices look set to weaken (-31% y/y, HRC, EXW, JPMe) we forecast
revenue decline of 41-54% y/y in 2009. Domestic industry moderate
recovery in volumes (15% y/y) and pricing (6-8% y/y) support revenue
growth (6-21% y/y) in 2010, we believe.
• Margins are expected to decline despite falling costs in 2009. With costs
down (-53% y/y, coking coal, EXW, JPMe), margins in 2009 should decline
as fixed costs to remain unchanged. We expect margin recovery in 2010 due
to neutral cost dynamics (0% y/y for coal) and improved operational
leverage.
• Non-payments are seen as the main issue. Some Russian steel and mining
corporates still receiving state financial support, with comfortable levels of
cash-flow to service their debts. The problem of non-payment is evident,
coal producers to be affected the most as the last part of the payment chain.
• We maintain our cautious outlook for the industry. 1H09 is going to be a
difficult period for the industry due to deteriorating environment and low
visibility. With much of fundamental deterioration is priced in, we intend to
re-test our fundamentals with better market visibility.
• Cost advantage could be the next trigger. Cost advantage ($120/t, JPMe)
due to a weak ruble could re-focus the Russian steelmakers on the export
market, quick global steel recovery allowed. Lower tariffs and transport
availability should provide an additional incentive to export.
• Evraz remains OW (PT $20.00, down from $33.00) on low cash cost and
export exposure. Raspadskaya (PT of 2.00) and MMK (PT of $0.50) remain
Neutral. Severstal (PT of $5.30) remains UW due to its strong expansion
into distressed US assets and exposure to the US automotive sector.
Table of Contents
Investment thesis .....................................................................3
Economy and industry outlook...............................................5
New domestic macroeconomic forecast.......................................................................5
Global industry outlook ...............................................................................................5
Domestic industry outlook...........................................................................................7
Domestic long steel market..........................................................................................8
Domestic flat steel market ...........................................................................................9
Export dynamics ........................................................................................................10
Domestic steel output.................................................................................................12
Cost structure .............................................................................................................12
Steel pricing outlook..................................................................................................14
Company Profiles...................................................................17
Evraz Group ............................................................................18
Valuation analysis......................................................................................................18
Risks to our Rating and Price Target .........................................................................19
Recent events .............................................................................................................20
MMK.........................................................................................22
Valuation analysis......................................................................................................22
Risks to our Rating and Price Target .........................................................................23
Recent Events ............................................................................................................24
Severstal .................................................................................26
Valuation analysis......................................................................................................26
Risks to our Rating and Price Target .........................................................................28
Recent events .............................................................................................................28
Financial Summary ....................................................................................................29
Raspadskaya ..........................................................................30
Valuation....................................................................................................................31
Risks to our Rating and Price Target .........................................................................33
Recent events .............................................................................................................34
Financial Summary ....................................................................................................34
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