May
27
We have reviewed ZMZ’ (Zavolzhsky Motorny Zavod – Zavolzshky Motor Plant) financial model, adding the data of 2007, as well as company’s plans of future development. Note that ZMZ sales of 2007 rose +20%, operating income expanded by 23%, whilst net income upped by +48%. Though company’s business is still close to level of 2006.
The primary risk of plant’s operations is the upcoming reduction of engine shipments for GAZ. Do remember that GAZ is unsatisfied with monopoly position of ZMZ and in various ways attempts to diversify its engine supply for assembled vehicles. This year a 3-year contract signed between ZMZ and GAZ will end. Therefore, the engine production for GAZ in 2008 would remain at similar level, i.e. about 195 th units. However, to year 2012 shipments for GAZ could drop down to 90 th units. At the same time, the production of engines for UAZ would rise. The resulting output of plant in 2012 may form up to 150 th engines, versus 250 th units produced in 2007. Besides of that ZMZ and Severstal-Avto are currently in development of F1A engines for Fiat Ducato. However, this project is likely to receive its own, newly built production facility.
During 2008 ZMZM plans to allocate bond loan worth 3 bn RUR. Loan features are still unknown, though loan-term is estimated to form 6 years. Considering this loan, ZMZ’ net debt as of late 2008 may form up to 216 mn USD.
The resulting renewals brought a new fair price of one common stock of ZMZ at 4,45 USD, and 3.34 USD per preferred stock. In accordance with current market quotes this forms -6.75% and -1.05% growth potential respectively. We recommend “HOLD” on stocks of Zavozlshy Plant.
ZMZ: We are responsible for what we have tamed - May 26, 2008 (PDF)