Story: Sumy Frunze reported that its FY09 sales increased by 44% YoY, to UAH 3.1bn. The sales growth was mainly due to higher demand for the company’s main production staples, including gas transmission and turbocompressor units, and chemical, oil and gas refining equipment. The majority of the company’s orders came from Russia and the Middle East.

At present, Sumy Frunze is considering revision and modernization of its product line, and is also actively searching for new markets.

Commentary: Sumy Frunze’s FY09 sales were in line with our forecasts. We confirm our BUY recommendation, with a target price of $12.0 (UAH 96) per share.

Story: Krukiv Wagon increased its production of freight railcars by 2.5x YoY to 593 units in January, according to the company’s press service. In terms of its secondary operation of building passenger rail cars, the company manufactured two units in January, comparable with five units in the same month the year before.

Commentary: The news is positive for Krukiv Wagon, which proved its capability to hit operational targets. Earlier, the company announced a plan to nearly double production of freight railcars to 6,000 units in 2010. In 2009, the company delivered 3,300 freight railcars and 21 passenger railcars.

Story: At their AGM in Kyiv on Thursday (Feb 25), shareholders of Farmak, Ukraine’s leading pharmaceutical company, accepted management’s presentation of the annual financial results for 2009 and dividend payouts of UAH 8.8 mn, or UAH 1.21 (USD 0.05) per share. They also re-elected the company’s board to a new five-year term.

The company reported UAH 917.5mn (USD 117.8mn) in revenues, an increase of 75% in hryvnia terms and of 18% in dollar terms over 2008. Farmak CEO Filya Zhebrivska attributed the impressive sales growth to a run on antivirus drugs during the recent flu panic, accompanied by the government’s overestimation of the problem. The growth allowed Farmak to become the second largest pharmaceutical company in Ukraine by sales, with a 3.9% share.

EBITDA shot up 107% YoY to UAH 298.2mn (USD 38.3mn). Net profit was UAH 137mn (USD 17.6mn) in comparison with a UAH 72mn net loss in 2008. For 2010, management is expecting sales of about UAH 1.26bn, EBITDA of UAH 349mn and net profit of UAH 196mn.

The company continues to modernize its facilities to meet GMP requirements. The capex in 2009 amounted to UAH 126mn (USD 16.2mn). In 2010 the company plans to allocate UAH 156mn toward modernization and development. At present, 62% of Farmak’s products are produced in accordance with Ukraine’s GMP requirements, and 28% of drugs comply with EU GMP standards.

Commentary: We maintain our positive outlook on Farmak, as we believe its management is highly qualified to lead the company through the current environment. As prices for imported drugs moved up significantly due to the hryvnia devaluation in the latter part of 2008, the demand for domestic medicines is expected to keep rising. As a result, Ukrainian pharmaceutical producers with strong brand recognition, like Farmak, will benefit by capturing a larger slice of the market.

Story: The International Finance Corporation (IFC), the private sector arm of the World Bank Group, is considering providing Mriya Holding with a USD 75mn financing package for further expansion, Interfax reported Wednesday (Feb 24). Mriya is one of the largest agro-industrial holdings in Ukraine. The IFC financing will consist of a USD 25mn quasi-equity investment, a USD 25mn subordinated loan, and a USD 25mn three-year revolving loan for working capital needs.

According to Interfax, the financing will be used for the construction of three silos with a storage capacity of 100,000 tonnes each, and also to increase the holding’s land bank by leasing 165,000 additional hectares during 2010-2012. Total investments in the project are estimated at USD 213.7mn. The IFC Board will decide on the Mriya financing issue on March 31.

Commentary: The realization of this investment project would make Mriya Ukraine’s largest farm holding, with a total land bank of about 340,000 hectares. If the IFC deal goes through, we expect total crop production to at least double by 2012 over the current volume.

Concern Khlibprom, a large bread and pastry maker operating in western Ukraine, slashed its net loss to UAH 11.4mn ($1.5mn) in 2009, compared to $17.2mn in 2008. The company’s EBITDA more than doubled YoY to UAH 47.8mn ($6.1mn) in 2009. Revenues tumbled 21% YoY in dollar terms, but rose 17% in the national currency to UAH 404.7mn ($51.9mn).

The company increased its EBITDA margin from 4.5% in 2008 to 11.8% last year. The net loss was caused by a 94% rise in interest expenses.

Krymenergo reported that its net profit fell 55% YoY to UAH 19mn ($2.4mn) in FY09. The company’s net sales slid 30% YoY to UAH 1.5bn ($184mn), while EBITDA declined 45% YoY to UAH 99mn ($12mn) in the period.

Krymenergo remained profitable in FY09, and we estimate its forward looking EV/EBITDA multiplier at 4.7x for 2010.

The privatization of a blocking stake in electricity distributor Prikarpattiaoblenergo has once again found no bidder. The State Property Fund of Ukraine has been trying to sell a 25.02% share in the company since spring 2009. A starting price for the stake was set at UAH 230mn ($29mn).

Prikarpattiaoblenergo is controlled by rival shareholders Privat Group and Energy Standard. Conflict between the major owners makes the company unattractive to external investors; therefore, we expect the state stake to be bought by one of the existing shareholders as soon as their feud is resolved.

AutoKrAZ Holding Company will supply Russia with over 30 KrAZ-63221 6x6 chassis equipped with engines manufactured at Russia's Yaroslavl Motor Plant, the company's press service reported yesterday (Feb 18). The first batch of chassis has already been supplied, and will be used in assembling equipment for the oil and gas industry. As a result of the positive dynamics seen in Russia’s economy, AutoKrAZ plans to increase its deliveries to the country by 1.5x YoY in 2010.

We believe the news is POSITIVE for the company, and signals a recovery in demand for AutoKrAZ’s automobiles and equipment. Earlier, the company announced its plans to increase production of automobiles 8.6x in 2010.

The Cabinet of Ministers of Ukraine has permitted thermal generation companies (GenCos) to buy coal from private mines. Earlier, state run Ugol Ukraine served as the monopoly supplier of coal for listed thermal electricity producers. The decision was aimed at covering the current shortage of bituminous coal at power units belonging to Centrenergo and Zakhidenergo.

We view the news as POSITIVE for the power generation sector. GenCos have been granted the opportunity to diversify coal suppliers and, more importantly, to buy coal at a cheaper price.

The Higher Administrative Court of Ukraine yesterday (Feb 17) suspended the results of the February 7 runoff vote in Ukraine’s 2010 Presidential Election pending a ruling on a case submitted by losing candidate Yulia Timoshenko. The case offers evidence of “widespread fraud” committed by President-elect Viktor Yanukovych’s camp at voting stations in eastern and southern regions of Ukraine (Yanukovych’s political turf). The date for a ruling has been set for no later than February 25, the same date established by Verkhovna Rada for Yanukovych’s inauguration. Subsequently, a representative from the Yulia Timoshenko Bloc told reporters that a parliamentary bill is in the works for the suspension of the presidential inauguration until the issue is resolved. Ever the optimist, Timoshenko asked the court to schedule a revote for the third Sunday following the ruling.

The court’s decision to suspend the Central Election Commission’s results represents a small victory for Timoshenko. However, she now risks damage to her political façade on two fronts: It’s questionable whether the Timoshenko Bloc has the necessary support in Verkhovna Rada to pass the bill – members of the party’s majority coalition have recently defected and more could follow in suit. And, Timoshenko is expected to lose in court – lesser courts have already rejected some of the evidence.

We maintain our veiw that Timoshenko will lose the court case and that Viktor Yanukovych will be sworn in as Ukraine’s next President between February 25 and March 15 (the deadline established by Ukrainian law).