Energoprojekt. 12 November M12 Update

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Philomena Boyd
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Energoprojekt 12 November 2012 9M12 Update Performance over 1M 3M 12M FY/e 31.12 2009 2010 2011 2012F Absolute +6.1% +22.7% +26.7% Sales (RSD m) 20,007.9 24,198.2 21,193.6 24,917.

1 Energoprojekt 12 November M12 Update Performance over 1M 3M 12M FY/e F Absolute +6.1% +22.7% +26.7% Sales (RSD m) 20, , , , M Hi/Lo 631/360 EBITDA (RSD m) 2, , , ,220.3 Bloomberg symbol ENHL SG Pre-tax (RSD m) 1, Closing price RSD 540 Net income (RSD m) Market cap. 41.5m EPS (RSD) Free float 54.6% P/E (x) Next corporate event FY 2012 in February 2013 P/B (x) P/S (x) EV/EBITDA % % % % Source: Energoprojekt, Wisebroker estimates Belex prices at COB 09 November 2012 Energoprojekt came out with its 9 months report where it showed only numbers for a parent company which manages the entire holding. These are not relevant numbers but in the same report we saw that 9m consolidated sales are at EUR 186m, up 18% y/y and 2% higher than planned, while total backlog is now at EUR 286m. For the end of the year we can expect some RSD 24-25bn in consolidated sales (EUR 227m), up 17.6% y/y and net profit at RSD 717m, up 94% y/y but this will arrive on the back of high FX gains while operating profit will probably be lower vs level (maybe even more than 50% as in 6 months it is actually negative). Dividend cash payment is not expected in 2013 (dividend shares are not excluded). Investment ideas Being present on the markets less affected by the crisis: The company has operations in territories/countries which are less affected by the crisis and major clients are state governments. It operates in Africa (Algeria, Ghana, Nigeria, Uganda, Zambia), Middle East (Oman, UAE, Qatar), Peru, Russia and Kazakhstan. It generates around 55% to 60% of revenues from these markets. Solid backlog real potential is higher: At the end of September 2012, the company has a backlog of around EUR 286m. This provides safe base for the company s sales source in the next two years. We expect the company to contract additional EUR m, in The company is however capable to execute even larger volume of jobs - according to the management view it may go up to EUR 500m a year. Come back into Iraq: Serbian delegation will visit Iraq by the end of 2012 year when we can expect arrangements towards the cooperation of two countries in areas such infrastructure, energy, agriculture we believe this will be a great opportunity for Energoprojket for returning into this market where it was present before the war with good references. We believe it may contract hundreds of millions of USD in this country (Iraq needs 2 millions flat units, 5,000 schools, 40 hospitals, 7000km of new roads). Investment cycle in Serbian infrastructure is far away to be closed: Serbia still needs to invest a lot in its infrastructure at least EUR 5bn to 8bn. Highway routes are not completed/modernized, railways need complete modernization, hydro & thermo power plants as well, wind energy plants - We can also consider gas pipelines (South Stream), new bridges. These are all segments where Energoprojekt has credibility and competences and we also need to consider that these will be state financed project where Energoprojekt as partly state owned company will inventible engage. Hostile takeover rumours unjustified: Napred, which currently holds 11.9%, has been considered as a company which tends to takeover Energoprojekt but we think that such scenario is not realistic at all. This is far smaller company vs. Energoprojekt with much worse performances and typical luck of funds. Valuation: On a 2012F P/E of 7.5x, Energoprojekt trades at 31% discount vs. similar companies from the region ( available for comparisons) even though the company has solid backlog, strong position in Serbia, and opportunities abroad thus its position does not seem worse than average. Stock price 2001 to present Shareholdesr strucure Republic of Serbia GP Napred Other % % % Source: Belex.rs Source: CDA Vladan Pavlovic vladan.pavlovic@wisebroker.rs

2 2Q/6M 2012 results overview The company has reported consolidated 6 months net profit of RSD 644.2m which is much higher vs. RSD 90m from the first half of The result arrived on the back of huge FX gains as the company contracts around 60% of jobs abroad and dinar depreciate d against the EUR and USD. However, operating result came in at loss of RSD 44.9m (EUR 0.3m). The company has not reported figures for the relevant period form 2011 thus we can not properly estimate why EBIT turned into the negative zone but we assume that this arrived on the back of decrease in margins due to the high competition. Consolidated sales arrived at RSD 11.1bn or EUR 94.8m, up 2.5% y/y. Recently, the company has also reported consolidated figures for 1Q12 in a very short form where we can see that pre-tax profit arrived at EUR 0.3m, which is much better vs. 0.9m loss posted in the same period a year ago. Consolidated sales for 1Q12 came in at EUR 48.4m, up 45% y/y while value of contracted jobs amounted to EUR 43.9m in the same period which is also much better vs. 16m contracted in 1Q11. The company ended 2011 year with consolidated net profit of RSD 495m, which is broadly in line with the company's estimates (around RSD 460m targeted) reported in its 2H11 plan. RSD m Q2011 2Q2011 3Q2011 4Q2011 FY Q12 2Q F Sales 20, , ,33 5,91 6,47 5, , ,917.3 Pre-tax profit 1, Pre-tax profit as % of sales 5.8% 3.7% -2.9% 3.3% 2.0% 6.3% 2.7% 0.6% 12.8% 3.9% Quarterly figures sales& pre tax profit in RSD m (cons.) 7,00 6,00 5,00 Backlog in EUR m , , , , ,00 Source: ENHL 1Q2011 2Q2011 3Q2011 4Q2011 1Q12 2Q12 Sales Pre-tax profit F 2013F Newly contracted projects Prokop Source: ENHL, Wisebroker etsimates Business outlook new projects to arrive from infrastructural development in Serbia, Africa and Middle East The company expects around EUR 5bn of investments in Serbian & regional energy sector for the next several years which will be an opportunity for new contracts. These are the fallowing projects: Modernization of thermo power plants in Serbia (Kolubara B and TENT Obrenovac) - Serbia Revitalization and capacity increase at hydro power plant Zvornik - Bosnia Revitalization and capacity increase at hydro power plants Djerdap and Bajina Basta Serbia Gas pipeline Romania to Italy South Stream gas pipeline Serbia (Bulgaria to Hungary) Africa and Middle East are considering as markets which will provide new contacts form consulting services Infrastructural projects worth EUR 4bn in Serbia are expect for the next 5 years. These should be financed by international financial institutions such EBRD, WB, IBRD. Strazevica tunnel completion second track Highway E 763 construction Project documentation for Belgrade metro system (possible participation in constriction operations) Wind energy park and solar park

3 Financial outlook We took as a relevant the company estimates presented in its recent reports when considering financial outlook: Sales (consolidated) are expected to grow at an average annual rate of 4% in euro terms for the period , so the growth rate in RSD may be higher if dinar depreciates. Key sales drivers are new contracts expected on the back of infrastructural projects in Serbia and traditionally strong positions on foreign markets (Africa, Middle East, Kazakhstan) and existing backlog. Foreign revenues should dominate. Most of sales should arrive from construction, consultancy in energy and engineering. Pre-tax profit is expected to grow at an average annual rate of 9.6%, which can be taken as an approximately the same growth rate for the net profit. This is also in euro terms and it may be higher in RSD terms. Profit growth is expected to be driven by sales, FX gains and may be slight improvement in profitability can be assumed, even though it is hard to be estimated as the company may face competition abroad form Chinese or Turkish companies. We do not expect that operating profit margin may move higher than 2%. Dividends are not considered to be paid out in a recent future. It may happen that the company decides to distribute dividend shares on the back of earnings conversion into equity as it was the case this year. The company s mid-term financial projections EUR m 2011A 2012E 2013E 2014E 2015E Sales Pre-tax profit Source: ENHL Energoprojekt: Multiple-based comparison EV/ EV/ EV/ Company Country P/E P/E P/E EBITDA EBITDA EBITDA 2011E 2012F 2013F 2011E 2012F 2013F Enka Turkey Budimex Poland na Polimex Mostostal Poland 3.2 na Median Energoprojekt Serbia Premium versus peers 84.4% -30.9% -26.6% -83.4% -94.2% -89.1% Source: Bloomberg, Wisebroker estimates Bloomberg prices as of: Profitability outlook (Cosnolidatde) 3,00 2% Sales in RSD m (Consolidated) 25,00 EBITDA Net attributable profit EBITDA margin 18.0% 2, % 20,00 2, % 11.0% 12.0% 15,00 1,50 1% 24,198 24,917 26,163 1,00 7.1% 5.8% 6.7% 4.9% 5.8% 8.0% 6.0% 10,00 19,421 20,008 21, % 5,00 2.0% F 2013F % F 2013F Source: ENHL, Wisebroker etsimates

4 FINANCIAL STATEMENTS / CONSOLIDATED INCOME STATEMENT (RSD m) F 2013F Total operating revenues 17, , , , , ,720.3 Sales 19, , , , , ,163.2 Operating costs 17, , , , , ,275.4 EBITDA 1, , , , , ,516.9 Depreciation , , , ,072.1 EBIT , Pre-tax profit declared , Taxes Minority interests Net attributable profit BALANCE SHEET (RSD m) F 2013F Total fixed-assets 8, , , , , ,064.1 Property, plant and equipment, net 5, , , , , ,704.7 Intangible assets Long-term investments 2, , , , , ,290.3 Total current assets 15, , , ,14 21, ,899.6 Cash 3, , , , , ,447.7 Short term financial investments , , , , ,404.5 Trade receivables 5, , , , , ,770.5 Inventories 6, , , , , ,895.5 Deferred tax asset 13.4 Disposable fixed assets Total assets 23, , , , , ,963.7 Total shareholders' equity 8, , , , , ,844.2 Minorities (out of total equity) Long term provisions , ,028.3 Total non-current liabilities 2, , , , ,541.1 Long-term debt 2, , , , ,183.1 Other non-current liabilities Total current liabilities 12, , ,20 13, , ,443.0 Loans and other short-term borrowings 1, , , , , ,582.3 Trade payables 9, , , , , ,767.6 Other short-term liabilities 1, , , , , ,093.1 Deferred income tax Total liabilities and equity 23, , , , , ,963.7 CASH FLOW STATEMENT (RSD m) F 2012F 2013F Operating profit , Depreciation , , , ,072.1 Change in working capital , , ,306.9 Gross operating cash flow , , Other cash flow from operations Tax paid Net operating cash flow , , Capital expenditure -1, , , , , ,075.1 Free cash flow , Disposals Acquisitions Dividends -16 FX and others 1, , , , ,341.9 New equity , Change in net debt , ,

5 PER SHARE DATA (RSD) F 2013F Number of shares outstanding (in millions) EBITDA per share EBIT per share Published EPS Free cash flow per share Net dividend 17.6 NBV per share , , , ,297.4 PERFORMANCE CRITERIA F 2013F EBITDA margin 7.1% 11.0% 5.8% 6.7% 4.9% 5.8% EBIT margin 4.4% 5.5% 2.5% 1.2% 0.7% 1.7% EPS annual growth -8.8% 21.2% -27.3% -42.7% 86.0% 4.8% CFPS annual growth -39.3% -26.1% -7.4% 165.0% 96.9% -94.2% Pay-out ratio 22.8% % % % % % EPS CAGR 3y historic 1.8% -0.2% -7.0% -20.3% -8.1% 3.8% CFPS CAGR 3y historic 1.6% 40.2% -25.4% 22.0% 69.1% -32.8% Return on equity 9.1% 1% 6.6% 3.4% 6.0% 6.0% Return on assets 3.1% 3.5% 2.5% 1.4% 2.5% 2.4% VALUATION DATA F 2013F Financial year high (RSD m) 26,412 4,802 9,667 9,723 5,346 5,346 Financial year low (RSD m) 5,829 10,449 7,480 3,408 5,346 5,346 Reference market capitalization (RSD m) 5,046 7,068 8,521 3,711 3,881 3,881 Enterprise value (RSD m) 5,313 6,758 8,445 1, PER high (x) PER low (x) PER reference (x) PER current (x) P/CF (x) P/Book value (x) Gross dividend yield (%) 3.2% % % % % % EV/EBITDA (x) Legal disclaimer: This report is provided only for information purposes. Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security. The information and any opinions, estimates and forecasts have been obtained from sources believed by us to be reliable, but without representation or warranty, express or implied is made by us as to their accuracy or completeness. The information, opinions, estimates and forecasts may well be affected by subsequent changes in market conditions. This document may not be reproduced in whole or in part, or published for any purpose.

9M 2013 Results. November 11, 2013

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