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UKRAINE MARKET DAILY - MARCH 17

17 2010 .
Ukrainian equity markets corrected slightly on Tuesday, the UX Index declining 0.9% to close at 2,114.34 and the PFTS Index dipping 2.0% to close at 823.25. Total trading volumes on the UX reached $11.7 mln on 4,524 transactions, while the PFTS recorded only $2.4 mln on 2,469 deals.
EQUITY MARKET COMMENT Ukrainian equity markets corrected slightly on Tuesday, the UX Index declining 0. 9% to close at 2,114. 34 and the PFTS Index dipping 2. 0% to close at 823. 25. Total trading volumes on the UX reached $11. 7 mln on 4,524 transactions, while the PFTS recorded only $2. 4 mln on 2,469 deals. On the UX, 12 of 15 names included in the index basket closed down on Tuesday, with Avdiyiv Coke being the worst performer, shedding 4. 8%, followed by Bank Forum and Azovstal, which decreased 2. 9% and 2. 3%, respectively. On the other side of the ledger, Yasyniv Coke gained 0. 7% and Sumy Frunze NVO edged up 0. 1%. On the foreign stock exchanges, optimism prevailed. Astarta Holding (WSE) surged 10. 0%. London listed E&P's JKX Oil & Gas and Regal Petroleum climbed 2. 7% and 2. 2%, respectively. Kernel Holding (WSE) mustered a 1. 6% advance and Ferrexpo (LSE) increased a modest 0. 9%. We are opening our prices up 1. 0% this morning. FIXED INCOME COMMENT Ukrainian Sovereign Eurobond prices yesterday added a further 0. 5-1. 5 pp over Monday's closing prices across the entire curve. However, the highest prices were seen overnight. Bid prices on the Ukraine 16 and 17 climbed to 95. 00% late on Monday night, and then corrected to 94. 25-95. 50% on Tuesday. The Naftogaz Ukrainy 14 also reached a high late at night of 105. 00%, coming back to 104. 00-104. 50% by yesterday's close. Its spread over the Sovereign curve widened to 130-140 bps. Corporate issues also fared well. The MHP 11 rose 0. 75 pp to 100. 75-101. 75%, while PrivatBank and Ukreximbank bonds added 0. 5-1. 5 pp. INDUSTRIAL OUTPUT UP 5. 6% Y-O-Y IN FEBRUARY Industry growth decelerated to 5. 6% y-o-y in February (11. 8% in January) due to the effects of a higher base, as there the revival in output dynamics surfaced in February 2009, as well as the calendar effect. In seasonally adjusted terms, industrial output fell 2. 6% m-o-m in February (after 0. 8% m-o-m growth in January) largely on the back of a transitory m-o-m drop in metals output (there is evidence of an upturn in metals production in March). In y-o-y terms, though, metals output was up only 3. 0% in February (in contrast with the 26. 6% y-o-y hike in January), largely the result of a higher base last year (in February 2009, capacity utilization in the steel sector surged to 61% after coming in at less than 50% a month before). Meanwhile, domestic-demand-oriented food processing posted 3% m-o-m growth in seasonally adjusted terms, though it was still down 0. 4% y-o-y, revealing some tentative signs of consumer demand strengthening. On a positive note, machinery output continued its ascent last month (up 1. 2% m-o-m after seasonal adjustments); the sector's annual dynamics stayed upbeat, with output expanding 19. 2% y-o-y, due largely to a very low base (output fell 53. 5% y-o-y in February 2009). For various reasons such as base effects and unstable demand, the industry performance remains uneven across sectors, thus implying some volatility in the aggregate industrial output dynamics at least through 1H10. We therefore reiterate our industry growth estimate of 5% in 2010. TELECOM REVENUES FALL 6. 3% M-O-M IN FEBRUARY Domestic telecom revenues dropped 6. 3% m-o-m in February to $849 mln but were up 1. 4% y-o-y in 2m10. Mobile revenues dropped 10. 2% m-o-m in February, while fixed line and ISP revenues increased a respective 2. 1% and 1. 2%. Troika's view: Fixed line revenues had already dropped in the previous month. However, January and February are traditionally weak months, with telecom revenues typically coming in below the annual monthly average. For Ukrtelecom, fixed line and ISP revenues are much more important than mobile revenues, hence we see this news as neutral for the stock. We reiterate our BUY recommendation and target price of $0. 082 per share. S&P UPGRADES ALFA BANK UKRAINE TO STABLE FROM NEGATIVE Standard & Poor's yesterday revised its outlook for Alfa Bank Ukraine to stable from negative and reaffirmed its CCC+ credit rating. As mentioned in the statement, the outlook revision reflects both external (improved expectations of an economic recovery following the formation of a new government) and credit-specific factors (an expected improvement in capitalization). The capital increase is formally still in process but has already been incorporated into the calculation of CAR, which stood at 17% as of end 2009. The capital increase is not news for the market, and we continue to believe that Alfa Group will provide further support if needed, as the operating environment remains very tough, despite the apparent stabilization in the political arena. Following the restructuring of Alfa Bank Ukraine Eurobonds, the bank has substantially eased liquidity pressure, especially in 2010, when only one $100 mln installment falls due. Going forward, the bank will need to generate stable cash flow to meet the remaining payments; in the meantime, we do not expect any funding gap that might arise to be excessively high. The restructured Eurobonds had mild restructuring terms, including relatively short maturity, and were of a size large enough to guarantee decent liquidity in the issue. Hence, in our view, these bonds are preferable compared with other Ukrainian restructuring stories from an investors' viewpoint, despite a price rise in recent days on positive political news flow from the country.