January's industrial and construction data failed to build on December's strong results. Industrial production fell on the month, dragged down by lower automobile production. Here, the effect of order backlogs seems to have worn off, and car production reached its lowest level since January 2023. The construction sector also failed to get off to a good start this year, with output falling by more than one percent mom. However, in contrast to industrial production, we expect an increase for the year. At the beginning of the week, foreign trade figures for January were released. The latter still benefited from exports of previously unfinished car production. However, we expect this effect to fade in the coming months.

January's industrial and construction data failed to build on December's strong results. Industrial production fell on the month, dragged down by lower automobile production. Here, the effect of order backlogs seems to have worn off, and car production reached its lowest level since January 2023. The construction sector also failed to get off to a good start this year, with output falling by more than one percent mom. However, in contrast to industrial production, we expect an increase for the year. At the beginning of the week, foreign trade figures for January were released. The latter still benefited from exports of previously unfinished car production. However, we expect this effect to fade in the coming months.

In January, industrial production fell by 0.3% mom compared to December last year. On a yoy basis, it was 0.6% lower in January, which was better than the market consensus, which had expected a deeper decline of 1.2%.

Compared to the modest overall decline in industrial production, output in the manufacturing sector fell more sharply, by 0.8% mom. This partly reversed the 2.2% increase in December. In terms of level, industrial production has remained significantly subdued since around September last year and is almost 1% lower than the average for 2019. The automotive sector was a major contributor to January's weaker result. According to the CSO commentary, this was mainly due to lower production of parts and accessories for motor vehicles. Motor vehicle production fell by 6% mom in January, reaching its lowest level since January 2023. The auto industry appears to have run out of support from a large backlog of orders, which was one of the key factors preventing a deeper decline in industrial production like that seen in Germany. Lower automobile production in January could not offset the significant increases in output in the machinery and equipment (+5.2% mom) and electrical equipment (+6.8% mom) sectors. Production in the energy, mining and quarrying sectors made a significant contribution to the improved performance in January. Higher electricity production was already indicated by data from the electricity grid.

New orders were down 2.3% mom and 1.0% yoy in January. Low demand for industrial goods continues to plague domestic industry, as already indicated by the CSO's business survey at the beginning of the year.

Overall, industrial production is likely to remain relatively subdued for most of this year. It is likely to be negatively affected by trade wars and ongoing uncertainty. Although direct exports from the Czech Republic to the US account for only 3% of total exports, the indirect linkages of domestic industry through Germany are relatively strong, given the extensive bilateral trade between Germany and the US.

Foreign trade surplus remains high at the beginning of this year

The foreign trade balance at the beginning of this year ended with a surplus of CZK20bn in January, up by almost CZK3bn yoy. This was mainly due to a surplus in trade in motor vehicles (+ CZK6bn yoy). The January trade balance was slightly above the market consensus, which expected a surplus of CZK15bn. Traditionally, January is an improvement over December. Even after adjusting for seasonal effects, however, the positive trade balance remained relatively high at CZK15bn in January, or CZK6bn lower than in December.

Exports rose by a strong 12.2% yoy in January, also due to a lower comparison base with last January, while imports were 8.7% higher yoy. Compared with December, exports rose by 1.6% on a seasonally adjusted basis and imports by an even stronger 3.3%. For the year, we expect the foreign trade balance to moderate compared to last year, when a surplus of CZK228bn was recorded. This should reflect the weak performance of industry, which will be affected by low external demand and hence trade wars, on the one hand, and higher demand for imports as domestic demand recovers, on the other.

Construction in decline at the beginning of the year, but will grow for the whole year

In the first month of this year, construction output fell by 1.2% mom. The decline in building construction was 0.4% mom, while the decline in civil engineering was more pronounced at 2.6%. Thus, in terms of yoy dynamics, the mom declines meant that growth slowed from 10.8% in December to 8.2% in January for total output, from 9.4% to 8.7% for building and from 13.7% to 6.9% for civil engineering.

Leading indicators are not encouraging either, as the indicator of new building permits issued fell by 28.7% yoy, with the CSO citing the low number of building permits issued as the reason. This applies to both new construction (-29.1% yoy) and changes in completed buildings (-27.5% yoy).

The housing market was also in decline at the beginning of the year. The number of housing starts fell by 27.0% yoy, while only 1,260 apartments were completed, down 41.1% yoy, and the number of condominiums fell by as much as 53.1% yoy. January's housing completions are the lowest in nearly eight years.

Despite the downturn in the sector, employment has increased. Compared to last January, 0.2% more workers were employed in construction firms this year, and average nominal wages increased by 5.9% yoy in January. According to the CSO's economic survey, the lack of workers is still cited by construction companies as the biggest obstacle to their further growth. (Some 34.2% of respondents specifically mentioned this.)

However, confidence in the sector is slowly but surely rising. According to the February survey, construction sentiment was at its highest level since July 2022. After a 1.4% decline in total construction output last year, we expect growth of just under 2% this year. Lower financing costs because of lower interest rates yoy and the resulting higher investment activity should help.

CEZ reported 4Q24 results well ahead of estimates. 4Q24 EBITDA of CZK37.4bn is above consensus by a strong +17.7%. Margin increased by 5.5 pps yoy. Net profit of CZK6.8bn beats estimates by a strong +20%. FY results beat both CEZ's guidance and analyst consensus. The outlook for the year is also ahead of market expectations. The common denominator for the better numbers should be the higher availability of nuclear resources and the contribution of the acquired GasNet. The dividend from last year's profit could reach up to CZK47 (yield +4.5%).

CEZ reported 4Q24 results well ahead of estimates. 4Q24 EBITDA of CZK37.4bn is above consensus by a strong +17.7%. Margin increased by 5.5 pps yoy. Net profit of CZK6.8bn beats estimates by a strong +20%. FY results beat both CEZ's guidance and analyst consensus. The outlook for the year is also ahead of market expectations. The common denominator for the better numbers should be the higher availability of nuclear resources and the contribution of the acquired GasNet. The dividend from last year's profit could reach up to CZK47 (yield +4.5%).

Total revenues in 4Q24 increased by +6.8% yoy to CZK100.6bn. EBITDA amounted to CZK37.4bn (+25% yoy). The margin increased to 37.2% vs. 31.7% in 4Q23. The Production segment was clearly driven by nuclear power plants, which achieved a +31% yoy improvement. This was driven by the absence of excess sales levies and better pricing. Coal-fired power plants recorded a decline in production. Trading declined and returned to normal levels after very successful years. Overall, the Production segment was 10% weaker than a year earlier. Unsurprisingly, Mining was also lower (-27% yoy) due to lower deliveries to the Group.  Distribution was much stronger (+55% yoy). 4Q24 was the first quarter in which GasNet was fully consolidated. The sales segment realized higher electricity and gas volumes. Adjusted net income reached CZK6.8bn in 4Q24. This represents a yoy increase of +125%. This is due to higher EBITDA, but D&A is higher than our estimates (CZK 11.9 vs. CZK 14.9bn). Profits from 2024 are still subject to a special windfall tax. The effective tax rate for 4Q24 is 64.1%.

For 2024, EBITDA is CZK 137.5bn (+10% yoy) and adjusted net profit CZK 31.8bn (-9% yoy). EBITDA exceeded the full-year guidance (CZK 126-130bn) by 7.4%. Net profit of CZK 31.8bn is higher than the projection (CZK 26-30bn) by 14%.

Last year (2024), CEZ paid a special windfall profits tax (WFT) totaling CZK32.1bn.

Leverage: The net debt/EBITDA ratio is 1.5x (1.5x in 9M24, 1.2x in 2023). This is a comfortable level. It has increased slightly compared to 2023, mainly due to the acquisition of GasNet.

Dividend: CEZ typically publishes the dividend proposal at least one month before the AGM,usually by the end of June. Based on the current dividend policy (60-80% of net profit), the dividend could reach up to CZK47 per share (according to CEZ presentation CZK35-47), considering the upper end of the payout ratio. This represents a gross yield of 4.5%.

Outlook for 2025: For this year, CEZ targets EBITDA in the range of CZK125-130bn and net profit in the range of CZK25-29bn. This represents a decrease of about 7% and 15% yoy, respectively. This is due to lower expected realized electricity prices. On the other hand, there will be better availability of nuclear power plants (fewer outages). In recent years, expectations have tended to be conservative at the beginning of the year and are usually updated (increased) during the year. The net profit estimate also implies a dividend of up to CZK43 from 2025 earnings (yield +4%). CEZ's targets are above our estimates, where we expect EBITDA of CZK120 bn and net profit of CZK24.4 bn, and the market consensus (CZK120.5bn and CZK25.2bn).