Research Notes

GAZ Group is a diversified automotive holding company. The automaker expects 2007 revenue of USD 6.1 bn. The group incorporates five production divisions Light Commercial Vehicles (LCV), buses, trucks, specialized machinery and engines. Production diversification enables the group to lower its operating risks and benefit from the synergetic effect produced by its divisions. GAZ Group is a major player in the markets where it is present. We assign Buy recommendation to the company’s common and preferred shares and set a respective target price of USD 263 and USD 145 for the shares.

GAZ Group holds 46% of the LCV market, which is the largest segment of the Russian automotive market. GAZ also controls 60% of the four-wheel drive truck segment. The group has very high profit margins in these segments.

Takeovers of foreign companies in financial difficulties have enabled the group to buy licenses for modern equipment production cheaply. We expect new takeovers of truck and road machinery makers.

GAZ Group is viewed as the main beneficiary from the continuing booming demand for the road-building machinery segment, and the bus and truck segments, due to dominant positions in these market segments.

A share in the Canadian auto component producer Magna, held by Russian Machines, which is a GAZ group key shareholder, should help the group to improve product quality and lower its borrowing costs.

Konstantin Romanov

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