Končar Group showed another solid quarter, with Q3 sales increasing by as much as 69% YoY, amounting to HRK 1.39bn. On a 9M level, sales are up by 47.7% YoY, reaching HRK 3.56bn. Of that, the Domestic market accounts for 36.1% or HRK 1,285.2m. There, sales of goods and services to HEP relate to 15.5% of total sales revenue, while HŽ accounts for 10.2%. In 9M, we have seen a solid increase in operations concluded in the EU market with sales accounting for 37.7% of total sales. The most significant increases in exports were noted in Sweden and Austria due to Dalekovod’s contribution. Export in the EU increased by 20.2%, while every other exporting region also noted a double-digit increase, but we note that nominally they amount to a smaller share of total sales.
Looking at Končar’s segments, one can observe a very solid performance of the transformer segment, which noted an increase in sales of as much as 45.6%, reaching HRK 2.51bn. Besides that, the rail vehicles segment also observed solid 9M results (+43.3%) as contracted deals are kicking in. With the increase in business activity, an increase in operating expenses followed (+48.4%) and reached HRK 3.45bn. The increase in operating expenses was mainly driven by an increase in material costs (+54.2%), while these costs of materials represent 72% of the Group’s sales. Materials cost increased due to higher raw materials and commodity prices, combined with double-digit inflation overall. However, one should note that the company does hedge this with forward contracts in the case of copper, while for steel, transformer sheet and other important supply parts the company attempts to mitigate the risk with semi-annual and annual contracts.
As a result of all of the above, EBITDA observed a strong increase of 73.2% to HRK 398.3m. Such a result shows an improvement of EBITDA margin by 1.6 p.p. to 11.2%. Also, we note that Končar emphasized its normalized EBITDA (normalized for gain from selling its assets, revenues from transactions related to Dalekovod, provisions, etc..), amounting to HRK 243.6m. Even using normalized EBITDA, Končar Group (with Dalekovod consolidated) would report a slight increase YoY in its EBITDA.
Going further down the P&L, operating profit increased by 93.7% and amounted to HRK 304.6m, mostly on the back of very solid sales growth. Looking at the equity-accounted companies, one can note a result of HRK 9.4m showing lower profitability of KPT, their JV with Siemens. In 9M, the Group noted an increase in net profit to majority of 49.9% YoY, reaching HRK 184.2m. The Group’s backlog of HRK 6.97bn and an increase in new deals provide comfort for future periods that are filled with uncertainty on a wider scale. However, we should note that the consolidation of Dalekovod further boosted the backlog of the whole Group.
We find the results to be supportive of a share price. It should be noted that we are in the process of making a new model for Končar to reflect the current situation, as the past price target is not applicable anymore.