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29.08.2011

BNE: Mostostroy-11 reported weak 1H 11 RAS results, which should be negative for the stock

Mostostroy-11 reported that 1H 11 RAS revenue increased by 10% y-o-y to RUB 3.21bn, which was in line with our full year estimate, which assumes revenue will increase by 7% y-o-y to RUB 8.18bn.

Earnings. EBITDA decreased by 52% y-o-y to RUB 248mn, while operating income declined by 70% y-o-y to RUB 113mn. EBITDA and operating margins deteriorated by 9.9ppts and 9.6ppts respectively. Net income decreased by 99% y-o-y to RUB 1mn, mainly due to decrease in operating income. According to the company, the earnings decrease was the result of an increase in construction materials costs and labor, while project prices remained stable due to contract conditions.

Net debt. Net debt increased to RUB 1.26bn for the end 1H 11 compared to RUB 604mn for the end 2010. The increase in net debt was the result of an increase in working capital, driven by a 36% growth in inventories to RUB 2.95bn compared to RUB 2.17bn at the end of 2010. With net debt to annualized EBITDA ratio increased to 1.1x for 1H 11 compared to 0.6x for 2010, we believe that the company debt position is comfortable.

Negative impact on the stock. The results are weak due to deep decline in y-o-y earnings. Given fixed project prices, we admit that 2011 earnings could be weaker that our full year estimates. We therefore believe that the results could have negative impact on the company share price. Nevertheless, our long term view on the company is positive and we reiterate our Buy recommendation and our fair value of USD 2,080.

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