KEGOC reports KZT22.4 bn net profit for the 9M2016

Altynay IbraimovaNovember 17, 2016

According to the financial statements, net profit for 9M2016 is 22.4 bn KZT against the loss of 12.6 bn KZT a year earlier.

The company's revenue for the 9M2016 increased by 18% due to increased earnings from all types of services, mainly from the transfer of electricity (+7%). According to the Company, revenue growth was mainly due to the increase in average tariffs and electricity transmission volumes. Additionally, during 9M2016 KEGOC recognized revenue from the sale of services on power regulation to Uzbekenergo, rendered in 2015, amounting to 0.8 bn KZT.

The increase in costs was only 5% yoy mainly due to the growth of wages by 2% and the cost of purchased electricity by 3 times.

The company has reduced general and administrative expenses by 39% yoy, but this effect was caused by the reduction of allowances for Uzbekenergo debt. During 9M2016, the amount of accrued reserves exceeded KZT7 bn. This year repayment of the debt by the uzbek side was expected, but in September Uzbekenergo violated the repayment schedule again. Following this, KEGOC had accrued a provision in the amount of KZT653 mn. Overall, excluding the allowance for doubtful accounts, general operating expenses for the 9M2016 grew by 7% yoy, since wage growth amounted to 22% yoy.

Foreign exchange loss decreased significantly during the reporting period (-97% yoy). The share of cash in national currency is 98%.

Table 1. Financial results

bn KZT

9М2016

9М2015

yoy

3Q2016

2Q2016

qoq

Revenue

93.01

79.11

18%

31.10

29.43

6%

Cost of Sales

56.45

53.91

5%

20.23

17.46

16%

General and administrative expenses

8.97

14.79

-39%

3.73

2.60

43%

including a provision for doubtful debts

0.67

7.03

-91%

0.68

-0.07

-

Exchange difference

-0.74

-24.43

-97%

0.28

2.37

-88%

Net profit

22.42

-12.58

-

6.21

9.75

-36%

Source: Company data

Our view

KEGOC’s results for 9M2016 are better than our expectations: we expected that net profit will reach KZT25.5 bn in 2016. However, the Company has already managed to record a profit of KZT 22 bn. Furthermore, taking into account the seasonality of the services provided by KEGOC, we do not expect lower revenue in 4Q2016. At the same time, the risk of non-payment of debts by Uzbekenergo still exists and the amount of provisions can be increased.

We retain our “HOLD” recommendation, our 12M TP is 883 KZT/share.