19 July 2016
Further expanding its poultry export MHP reported another bunch of good operating results for Q2, when total poultry production increased vs. corresponding period of previous year by 9%, poultry sales – by 4% (along with it, export sales – by 36%).
Total volume of Q2 poultry realization in natural terms made 148.9k tons, for the whole 1H 2016 period – 266.6k tons (+4% to 1H 2015). The share of poultry export reached record-high 36% of total realization in Q2 and made 54.4k tons (+36% to Q2 2015). It is stated in report of the company that in !H Middle East sales grew by 50%, EU – by 26% and Africa – by 6 times, which we see as good result for MHP and its further prospects. In any case we see MHP as rather competitive on foreign markets from costs perspective, so main questions are quality of production and success of marketing strategies.
Average UAH price for chicken meat in Q2 2016 increased by 5% (up to UAH 29.2 per 1 kg) vs. Q2 2015 (at that price almost unchanged vs. two previous quarters), average prices growth on semi-annual basis made 11%. Initial plan of the company was to increase average UAH realization prices by 15-20% in Y2016, but we see it as highly questionable, taking into account declining world poultry prices and presence of financially strong and vertically integrated competitors in Ukraine. In any case, along with growth of average prices, domestic realization of the company declined by about 6% in 1H2016 vs. corresponding period of previous year. Taking into account market positions of MHP we have little concerns regarding ability of the company to take back its domestic market share, but planned growth of prices seems hardly reachable.
On positive side for the company are high yields of main crops expected for this year. For instance, basing on report, the company already harvested 40% of winter crops for this year (about 97k ha of total sown area under winter crops). 60% of rapeseeds and 20% of winter wheat has been already harvested with yields of 3.7 tons per 1 ha for rapeseeds (vs. 3.4 in previous year) and 6.7 tons per 1 ha for wheat (6.0t/ha a year ago). Taking into account favorable weather conditions in regions of MHP operations for spring crops, significantly better (vs. previous year’s) results can be expected for corn&soybeans (Y2015 corn yield was minimal for last 5 years at 6.8t/ha due to negative weather conditions in July-August). Increased yields should positively influence general profitability of the company, despite somewhat lower vs. previous season grains realization prices (and bearing in mind large intragroup share of grains consumption).
H1 2016 financial report of the company is expected at 17 August 2016. One of main questions here will be if the company will comply with its Eurobond covenant - Net Debt/EBITDA not higher than 3.0x. To fulfill this covenant basing on H1 financials, EBITDA in Q2 should be not less than USD 120-130M (in Q1 it stood at USD 89M). Taking into account current operating figures, good expected grains harvest, we see that in the best case the company will be marginally able to fulfill this covenant. But in any case breach of covenant will not lead to technical default, but will only not allow MHP to attract new debt till covenant is fulfilled. So, here the company is on rather safe side, as investment plans are quite modest for current year, construction of 2nd stage of Vinnitsa project is postponed till further expansion of export operations on new target markets (EU and Middle East).