Veles Capital presents analysis update on MTS:

- March 11, 2009 MTS output 4Q 2008 and full-year 2008 US GAAP report, which includes company’s activity estimates under the conditions of crisis. We assume the following important moments of the report are to be outlined. First of all, the devaluation of Russian ruble and Ukrainian hryvnia (the company gains more than 90% of sales in those currencies) reflected on dollar estimates (both: income and expense) – 14% reduction of sales versus 3Q 2008 is pretty much explained precisely by the currency factor.

- Second, once again the company pursued pre New Year marketing holiday specials, which reflected on APPM estimate that reduced in Russia by 9.4% (in ruble terms), however consumption stimulation turned out to be weak – the effect at MOU was minimal. So, the Russian ARPU of the company declined within the quarter. Note that in dollar terms ARPU dropped 17.6%. More to that the crisis influences on the subscribers’ activity were insignificant for the nonce.

- Third important moment, the expected one, was the increase of loss from currency exchange rates differences, which totaled almost 0.5 bn USD in 4Q 2008 and have respectively “corrected” the net profit value down.

- We lower our estimation of MTS shares’ value to 10.60 USD per share (52.99 USD per ADR). The former estimation – 12.44 USD per share (62.2 USD per ADR). Along with that, the given shares still obtain significant growth potential to the target value. Due to that we confirm our recommendation ”BUY” for the shares of the company.