OREANDA-NEWS. February 04, 2010. Mechel released operating figures for FY09, showing flat QoQ output for its core products (coking and steam coal, steel), reported the press-centre of OTKRITIE Financial Corporation.

View: The results were broadly in line with market estimates. Capacity utilization at key production units stayed high. As a function of production process optimization, the company posted lower YoY sales numbers for steam coal but a hike in YoY coking coal production, information which is not new.

The only positive surprise came from the power generation segment, which showed a 64% QoQ growth in kWt output thanks to a revamping of its existing facilities. The segment’s share in top line is roughly 15%.

Overall, our take on these results is neutral. We see higher upside risk for the stock from today’s announcement made by Raspadskaya, which unexpectedly has increased its domestic coking coal prices by 30%. External sales of this product account for roughly 10% of Mechel’s revenue mix.

Valuation and Action:  Based upon our forecast, Mechel trades on a 2010E EV/EBITDA of 6.8x, versus a figure of 7.8x for EM peers.