GAZ Group CEO Bo Andersson released an improved outlook for light and medium commercial vehicles (LCV and MCV) sales that projected a 10% increase to 110,000 vehicles in 2011. At the same time, he disclosed company plans to increase bus and heavy truck (HCV) sales by 48% y-o-y and 9% y-o-y to 14,000 and 12,000 respectively.

The new outlook estimates that LCV and MCV sales will increase by 33% y-o-y compared to previous estimates of 22%. In our view the figures are realistic given strong 1H 11 sales, which increased by 38% y-o-y to 45,586 vehicles. At the same time, the 46% y-o-y sales outlook for bus sales looks optimistic, in our view, given just a 10% y-o-y increase in 1H 11. The HCV outlook is in line with 1H 11 results and looks weak compared to the HCV market and, in particular, to KAMAZ, which expects 2011 sales to increase by 25% y-o-y, according to the company's CEO.

Stock price impact. In our view, the strong outlook for the LCV and MCV segment, which is a key segment for the company, is very positive. Although the bus segment sales outlook seems optimistic, we assume it is based on firm orders and could offer us a surprise. HCV sales looks weak, but that is not unexpected given the company's limited product range in this segment.

Overall, we believe that new outlook should have positive impact on investor sentiment. We reiterate our BUY recommendation with a fair value of USD 68 per share.

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