Ukrainian Automotive Industry

Publication Date	April 2008
Publisher	Concorde Capital
Product Type	Report
Pages	64
ISBN Number	not applicable
Product Code	CNC00021

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Summary

Ukraine's solid macroeconomic backdrop (average growth over the last three years in real GDP at 6% and real disposable income at 16%) is providing the spark to the domestic automotive sector. On the mid-term horizon is the creation of larger auto holdings, which are likely to involve all traded names, to mixed benefit. Taking the holdings public will serve as catalysts. Our top pick in the segment is Bogdan Automobile Plant, on the strength of its current expansion plan, which we believe is not fully factored into its stock price.

Ukrainian macroeconomic backdrop paves the road

Over 2005-2007, the rapid expansion in the Ukrainian economy (real GDP growth at 6% CAGR) and accelerating transportation needs (freight turnover doubled) led to a 156% upshift in new car sales. We expect that in the mid-term, the Ukrainian automotive sector will enjoy double digit growth based on the sound outlook for real disposable income (13% annual growth over 2008-09), real GDP (7% annual growth over 2008-09), and freight and passenger transportation.

WTO & dependence on suppliers: margin constrictors

Two key factors will restrict Ukrainian car producers' margins: the 15%-25% drop in import duties for cars in 2009 as part of Ukraine's WTO accession accords and the high bargaining power of auto part suppliers. Meanwhile, with less dependence on the supply chain, truck producers will be better able to defend their margins.

Holdings' strategic plans rife with catalysts

Last year Bogdan and AvtoKrAZ announced strategic plans to create holdings and thereafter to take the new structures public. We expect IPOs by these automotive holdings over 2008-2009 to provide catalysts for underlying stocks. The plans of UkrAvto's owner to create a car distribution holding, in our view, carry high risk of asset stripping or dilution at UkrAvto.

Content

1. Investment thesis
- Investment summary
- Ukrainian macroeconomic backdrop paves the road
- WTO & dependence on suppliers: margin constrictors
- Holdings' strategic plans rife with catalysts
- Recommendations
- Stock performance
- Stock performance, 12M*
- Trading volumes, USD ths
- Investment cases
- Bogdan. Valuation results, USD PER SHARE
- AvtoKrAZ. Valuation results, USD PER SHARE
- UkrAvto. Valuation results, USD PER SHARE
- Stock market monitor
- Sector introduction
2. Market overview
- 2.1 Behind the wheel: market drivers
  - Europe's top 10 car markets in 2007, mln units
  - #1 economic growth
  - Passenger and freight turnover growth
  - Nominal wages vs. new car sales
  - Car penetration and GDP PPP per capita in selected countries, 2006
  - #2 easier auto financing
  - Auto lending dynamics in Ukraine
  - Transportation equipment leasing in Ukraine, USD mln
  - #3 replacement needs
  - Age structure of vehicles in Ukraine in 2007
  - Replacement forecast: Vehicles 1997 and older to be replaced by 2015
  - Fees and taxes on used imported cars, USD/100 cm3 of engine capacity
  - Registration fees for cars more than eight years old
  - Excise taxes on cars more than five years old
- 2.2 Car sector
  - Demand trends
  - Sales of new cars in Ukraine, ths units
  - Ukrainian car market development, mln units
  - Ukrainian car producers
  - Ukrainian car market split by producers, 2007
  - Ukrainian car producers (2007 Production/Capacity, ths units)
  - Market share of ten most popular brands in Ukraine, 2007
  - Share of cars sold in Ukraine by price segment, 2007
  - Ukrainian car producers share of the domestic new car market
- 2.3 Bus sector
  - Demand trends
  - Ukrainian bus market in 2007
  - Split by class
  - Split by average price
  - Ukrainian bus market development, ths units
  - Sales of new buses in Ukraine, ths units
  - Ukrainian bus producers
  - Ukrainian bus market split by producers, 2007
  - Ukrainian bus producers
  - Market share of ten most popular brands in Ukraine, 2007
- 2.4 Truck sector
  - Demand trends
  - Ukrainian truck market in 2007
  - Split by producers
  - Split by capacity
  - Demand for new Ukrainian trucks, ths units
  - Light trucks 3.6-8 tons
  - Heavy trucks: >16 tons
  - Ukrainian truck market development, ths units
  - Light trucks 3.6-8 tons
  - Heavy trucks: >16 tons
  - Ukrainian truck producers
  - Market share of ten most popular brands in Ukraine, 2007
  - Light trucks: 3.6-8 tons
  - Main heavy truck producers in CIS
- 2.5 Supply chain & WTO accession: margin restrictors
  - Raw materials & assembly parts
  - WTO entrance: Import duties set to lower
  - Ukrainian import duties on automobiles
  - Summary
3. Company profiles
- 3.1 Bogdan Automobile Plant
  - Bogdan's share in new vehicle sales in Ukraine, 2007, by units
  - Probable process of Bogdan's consolidation
  - Increasing capacity at Bogdan, number of vehicles
  - Production forecasts, units
  - Profitability forecasts
  - DCF output for base scenario, UAH mln, as of April 2009
  - Comparative valuation
  - Valuation summary
  - Valuation results, USD per share
  - Financial Statements, IFRS
  - Income Statement Summary, USD mln
  - Balance sheet summary, USD mln
  - Cash flow statement summary, USDmln
- 3.2 AvtoKrAZ
  - Catalyst on the horizon: IPO
  - AvtoKrAZ sales structure by segment, 2007
  - Sales destinations, ths units
  - Officially reported data remains opaque
  - Key forecasts
  - Forecast revisions for AvtoKrAZ
  - Truck production and capacity utilization
  - Profitability forecasts
  - Implied prices by DCF scenarios, USD per share
  - DCF output of base case scenario, UAH mln, as of April
  - Sensitivity analysis
  - Valuation results, USD per share
  - Financial Statements, UAS*
  - Income Statement Summary, USD mln
  - Balance Sheet Summary, USD mln
- 3.3 UkrAvto
  - UkrAvto company (AVTO) ? UkrAvto brand
  - Estimated structure of Tariel Vasadze automotive business
  - Financial data and key ratios, 2008
  - Risk of dilution
  - Ukrainian car dealers, 2007
  - Revenue structure of UkrAvto (AVTO)
  - Key estimates for UkrAvto
  - Valuation results, USD per share
- 3.4 KrASZ Ltd
  - CJSC Communal Transport Plant (Lviv Bus)
  - OJSC Cherkasy Bus
  - CJSC Eurocar
  - CJSC Zaporizhya Automobile Plant
4. Appendices
- Appendix A: Bogdan production line
- Appendix B: AvtoKrAZ production line
5. Analyst Certification
- 6. Investment Ratings
- 7. Disclaimer