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Veles Capital - RusHydro: 1Q 2019 results and conference call - Jun 13, 2019

RusHydro

1Q 2019 results and conference call

June 13, 2019     

RusHydro presented IFRS 1Q 2019 results and hosted a conference call. NEUTRAL

1Q 2019 results turned out to underperform our targets slightly as EBITDA was 6.8% down YoY, and the net profit was 31% down.

Reduced water ratio and the declines in power energy and heat consumption at the Far East were mainly responsible for the negative change.

Conference call was not much informative, thus these are the major takeaways:

 - priority stations at the Far East are to be commissioned in 3Q 2019

 - the management did not confirm the information on SUEK negotiating the purchase of the Far East assets

 - modernization program of thermal station is a subject of discussion, the management expects a decision on it prior to the end of the summer season

 - the management expects the 2019 CapEx at 126 bn including VAT (approximately 1.6x growth)

 - the volume of total state funding for 2019 is expected to total RUB 43-44 bn (+5.5% YoY)

 - the additional emission for RUB 7 bn has been finalized. RUB 7 bn more are to be placed next year (the assets are directed to the Pevek-Bilibino project).

 - generation segment of the DVEUK assets is to come under the control of RusHydro. The management does not expect an additional emission, yet it has no exact plan on consolidation.

To sum up, we indicate that impact of the poor financial results on the quotes is no longer in focus on the back of stabilization of the volume of the dividend payouts and the rumor on the possibility of the Far East assets being sold. Management expects the 2019 dividends to be at the same level as the 2018 dividends were and the dip on the net profit, along with growth of the CapEx no longer seem to be that negative to the investors. The possible selling of a share of the Far East generation and elaboration of the conditions for modernizing the stations is a certain strong point for the company.

We confirm the recommendation BUY with the price target at RUB 0.7.

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