Rosneft confirmed at BUY, TP RUB 535 - Attractive levels, 2021e dividend yield at 10%, FCF is 20%

We believe that current levels are attractive to enter the stock as the company may offer double-digit dividend yield for 2021e with the highest 2021e free cash flow yield (before interest) in the sector of over 20%. We also believe that in 2020e a possible decline in EBITDA should not lead to cut in dividend payments. The cut in FCF from the deterioration of market conditions should be partly compensated by company related factors. First of all, we expect that in 2020e Rosnefts international gas project Zohr will start generating positive free cash flow, which could be about USD 500 mn per year during 2020e-22e. Also starting from 2020e the company will be provided with new tax benefits for Priobskoye field, which could be at USD 500 mn in 2020e and up to USD 700 mn per year for the next nine years. Not less important, low interest rates in the market should lead to a decline in interest payments at both P&L and FCF levels at least, at our estimate, of USD 300 mn. Moreover, at P&L level an extra positive effect on net income would come from a cut in non-cash expenses, which could decrease by USD 2.7 bn already in 2020e. Overall, we expect a decline in 2020e FCF (after interest) of 12% yoy to USD 9.6 bn, which is more than enough to pay dividends estimated at RUB 35/share for 2020e and cut debt and obligations under prepayments by additional USD 4 bn. We confirm our BUY recommendation for both DRs and local shares. We have fine-tuned and increased DCF-based target prices for DRs to USD 8.1 (from USD 7.8) and for local shares to RUB 535 (from RUB 524).