BorsodChem held its AGM on Friday, where shareholders accepted audited 2005 earnings, voted on HUF 51 per share dividend and elected a new CEO.
While the previous two was widely expected, the new CEO spoke about the new strategy of the company, which delivered some surprises to us. BorsodChem plans to boost polyurethane production with investing some EUR 500m in the next five years. Under the strategy, BorsodChem aims to boost is TDI capacity by 160 tonnes and its MDI capacity by 200 tonnes by 2009 and also plans to produce higher value-added TDI and MDI products.
As a result of the investments the company sees revenues to double to EUR 1.6bn by the end of the period, while EBITDA is projected to more than double to EUR 300m-400m.
BorsodChem’s new strategy seems to be a substantial turn for us. Instead of widening product portfolio and investing into a new product lines, BorsodChem now aims to concentrate on economy of scale and strengthening pricing power. As a first glance the new strategy seems to be more reasonable for us. At the moment we keep our Hold recommendation on the stock, as the strong operating performance in 1Q06 is unlikely to be repeated in the following quarters of the year. Our target price of HUF 2,448 implies a mere 3% upside.