Aeroflot posted 9M2017 financial results based on RAS

Andrey KozhokaruNovember 01, 2017

For 9M2017 under RAS, net income of the Group decreased by 40% y/y. An increase in revenue equaled 3.8% y/y while the cost of sales increased by 7.2% y/y. 

Under Russian Accounting Standards (RAS), the Group’s revenue increased by 3.8% y/y reaching 340 692mn rubles. The cost of sales amounted to 295 980mn rubles increasing by 7.2% y/y. For the reporting period, the Company’s operating profit (profit from sales) decreased by 40% y/y to 13 419mn rubles. The net income for 9M2017 equaled 25 541mn rubles versus 42 850mn rubles for 9M2016. According to financial statements, the decrease in net income is mostly attributed to the decrease in other income by 18 814mn rubles. The other income consists of a number of items that are non-recurring in nature and accordingly vary from period to period.     

Our opinion:

Given the strengthening of the ruble and the rise in oil prices, as well as taking into account high expectations for the Company in 2017 after strong results in 2016, we do not rule out a negative reaction of the price of Aeroflot shares in case of a decline of annual financial indicators.

The RAS accounting has a number of differences from IFRS and, as a result, provides generalized information on the Company's results. Disclosure of results under IFRS is scheduled for November 30. After the publication of financial results for 9M2017 under IFRS, it will be possible to make detailed assumptions about the results of the Group for 2017.

We adhere to the view that at certain times the market can over-estimate the negative influence of external factors, such as the change in the ruble's exchange rate and the rise in oil prices, on the price of the Company's shares. One of the main drivers of the potential growth of the Aeroflot Group, in our opinion, is the potential for organic development, which requires time for realization, but correspondingly provides an overall growth of financial metrics, which increases the Company's capitalization growth even in the absence of improvement in efficiency. Considering that currently the market has no expectations of a return of oil prices above $100 per barrel, nor there are expectations of continual, high volatility of the Russian currency, we maintain our Buy recommendation unchanged.