Today on 20th of July, Kcell published financial and operational results for the second quarter of the current year. We highlight the slowing decline of subscriber’s base by -1.1% on a quarterly basis and insignificant decline of revenue from the voice services.
The revenue from the voice services amounted to T21.681bn, which is higher than our expectations by 0.7%, herewith there is an insignificant revenue contraction of 0.1% q/q. Despite the cancellation of “mobile slavery” in the beginning of the year, there is a noticeable slowing outflow of subscribers in quarterly terms, which is presumably caused by prices hitting the rock bottom because of the providers’ price war and the fact that Kcell received a license to provide 4G services. Hereby, the company’s cost of sales increased noticeably by 12% q/q, which is above our forecast by 6pp.
|Table 1. Financial results|
|In KZT mn||1Q2016||4Q2015||qoq||1Q2015||yoy|
|Sales||36 413||35 470||2,70%||42 980||-15,30%|
|Cost of sales||23 206||20 728||12,00%||21 449||8,20%|
|EBITDA||14 338||14 620||-1,90%||22 184||-35,40%|
|Net income||4 630||6 625||-30,10%||11 319||-59,10%|
|Source: Company data, HF estimates|
Despite the poor annualized performance of the company during 2Q2016, such as 2x drop in profit and a significant drop in EBITDA, in quarterly terms the financial performance of the company is within our expectations. It is also worth to note that within 1H2016, dynamics of the company’s indicators slightly improved, which might be attributable to the changes in the telecom market this year (price reduction of interconnect, cancellation of “mobile slavery” and commencement of 4G).
We believe that the company’s results confirm our view that the price wars reached the bottom, which is why we maintain our recommendation to BUY with a target price of T1390. As for the KCEL LI, a target price is adjusted to $4.1/GDR due to the changes in USDKZT rate from the moment of our last report.