WOOD Flash – MMK: 1Q18 financial results – slightly below consensus, 1.8% quarterly dividend yield but warnings of accelerated capex – small negative

MMK has reported its 1Q18 financial results. EBITDA was USD 560m (+24% yoy, +5% qoq), 3% below the Interfax consensus, and net income was 20% below consensus. FCF of USD 145m was up 25% qoq, impacted by a USD 86m working capital outflow, although this was less than the USD 145m outflow in 4Q17, resulting in FCF growth. In addition, MMK’s Board has recommended a dividend of RUB 0.801/share for 1Q18, in line with the Bloomberg consensus, representing a 1.8% yield (7.5% annualised): USD 145m at the current exchange rate, or 100% of the IFRS FCF, in line with our 2018E forecast. On the negative side, management guided that its capex programme could be accelerated this year, which would limit FCF and, therefore, potentially dividends, in our view.
Overall, while MMK’s desire to pay 100% of FCF in dividends should be seen as positive for closing the gap to its peers in terms of dividend payments, we believe the news that capex could be higher offsets this. In addition, lower financials than expected should also result in these numbers being taken as slightly negative by the market, in our view. We remain BUYers of MMK on valuation grounds (it continues to trade at a large discount to its peers, at only 3.4/4.2x 2018/19E EV/EBITDA, despite now adopting similar dividend payouts), but we are concerned that the accelerated capex programme could negatively impact our dividend expectations going forward.