Motor Sich improves profit 1.5 xs despite revenue decline in 1Q14

CIS leading producer of aircraft engines Motor-Sich (MSICH UK) reported a 4% yoy decrease in 1Q14 net revenue to UAH 1.85 bln, on the decline of revenue in both its key segments, new engines (-14% yoy to UAH 1.13 bln) and repaired engines (-26% yoy to UAH 0.14 bln). At the same time, the company reported a 30% yoy increase in the value of repaired engines, to UAH 0.28 bln. Motor Sich managed to decrease its COGS 7% yoy, and it reported smaller “other operating expense” thus generating a 69% higher EBITDA yoy at UAH 752 mln. Its bottom line increased 51% yoy to UAH 487 mln in the quarter.

In other news, the Ukrainian Ministry of Defense reported on April 25 that Motor Sich supplied it the first Mi-8-MSB-V helicopter, which is a thorough modernization of the Russian copter Mi-8.

Alexander Paraschiy: The main worrying signal for the company’s quarterly report is the decrease in net revenue, which has happened for the first time in three years. At the same time, we see no signs that Motor SIch is decreasing its cooperation with Russian customers. The Ukrainian company is reportedly developing new business directions with Russian plants. In particular, just in late March, Russian United Engine Corporation announced the launching of an “International Engineer Center” jointly with Motor Sich, to design engines for new Russian fighter jets, the T-50 and Su-35.

Cooperation with Russia on defense projects does not look sustainable at the moment, given that the relationship between Russian and Ukrainian governments has been deteriorating over the last months, and given that many western countries have cut off technical-military cooperation with Russia. Notably, Russian president Vladimir Putin stressed on April 28 that there have been some decisions of Ukrainian government bodies to halt deliveries of military products to Russia, while we understand that this does not include private companies like Motor Sich. In any case, should the conflict between two nations escalate, we see that the revenue of Motor Sich will decline further in coming quarters.

Источник: Конкорд Капитал