OREANDA-NEWS. May 18, 2010. Kazan Helicopters and Ulan-Ude Aviation posted FY09 and 1Q10 RAS financials on Friday. Kazan Helicopters showed a 35% YoY rise in revenue to USD 474m (+79% YoY for Q1) and a 34% cost of sales growth. Ulan-Ude Aviation (UUAZ) posted a 62% YoY revenue growth to USD 389m, with cost of sales up only 50% YoY, reported the press-centre of OTKRITIE Financial Corporation.

View: Costs for Kazan Helicopters (KHEL) were up only 21%, helping its net income to climb 250% to USD 49m. However, the company’s free cash flow dropped 6.3x YoY, but remained positive (USD 16m). Net income for UUAZ rose 76% YoY to USD 79m, pushing up its net margin from 19% to 21% (Kazan Helicopters had only an 11% net margin in 2009).

However, as in 2008, UUAZ showed negative free cash flow (-USD 71m). The results of Ulan-Ude Aviation are in line with our forecast, while KHEL’s net income outpaced our forecast and the company’s preliminary figures, primarily due to 4Q09 forex gains. Unfortunately, Kazan Helicopters’ net income growth does not allow to shareholders to expect high dividends because currently it is pegged to the par value of a share (RUB1 or c. USD 0.03) rather than to net income.

Valuation and Action: We like the high profitability of UUAZ and laud management’s efforts to reduce negative free cash flow. We reaffirm BUY ratings for both Kazan Helicopters and UUAZ.