2016 Kcell annual results

Dias KabyltayevJanuary 30, 2017

At the end of last week, Kcell published 4Q and YE financial and operating results. As it was expected, services prices fall has led to decrease in gross revenues. Thus, EBITDA excluding non-recurring items decreased by 29% y/y, amounting to 57.9 billion tenge in 2016. Kcell’s net income in 2016 decreased by 85% y/y to 16.7 billion tenge. During the reporting period, the client base has decreased by 3.6% y/y.

Last year was difficult for Kcell, both due to lower client base, as well as due to increased competition on the telecom market as a result of lower prices. The positive dynamics of revenue third quarter in a row in 2016 demonstrates a positive signal of stabilization.

Fig.1. Financial indicators for 2015-2016    
in million. tenge 2016 г. 2015 г. y/y
Revenue   147 037   168 424 -12,7%
COS     91 866     89 932 2,2%
Sales & Marketing costs     10 988       9 221 19,2%
G&A     14 150     12 381 14,3%
Financial expenses, net       8 285       7 811 6,1%
EBITDA     57 989     81 787 -29,1%
Net profit     16 684     46 632 -64,2%
tenge      
APRU          2,5          3,2 -21,9%
ARMB 0,3 0,7 -57,1%
Source: Company data      

Revenues from voice services declined by 17.8% y/y and amounted to 86.634 million tenge (2015: 105,345 million tenge.). The volume of voice traffic declined by 2.5% y/y to 22,948 million minutes (2015: 23.540 million minutes), while the APRU dropped to 2.5 tenge (2015: 3.2 tenge). Revenues from data services, on the other hand, rose by 5.2% y/y to 41.339 million tenge (2015: 39.278 million tenge). Data traffic has doubled to 121,587,949 GB (2015: 59,607,325 GB). The growth of data traffic in 2016 was partially offset by the lower package price per MB, which led to decrease in average revenue per MB (ARMB) from 0.7 to 0.3 tenge.

As a result of lower revenues with stable costs and increase in administrative expenses due to increased payroll costs and tax reserve accrued, EBITDA decreased by 29% y/y and amounted to 57.989 million tenge (2015: 81.787 million tenge). For the sane reasons, the Company's net profit also decreased by 64.2% y/y amounting to 16.684 million tenge (2015: 46.632 million tenge).

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Kcell continues to demonstrate improvement of indicators regarding to the large client base leak in the 1Q2016, thus, the base in the 4Q increased by 0.8% q/q. In our opinion, the increase in the client base is a definitely positive factor for the Company driven by the Company’s adaptation to a new market environment through the expanding and applying more flexible tariff plans.

Currently, Kcell is under a tax audit for the period of 2011-2015. Based on a preliminary assessment, the Company accrued a provision for 3.962 million tenge.

Our opinion

Despite the Company’s weak financial performance during 2016 in the light of unstable economic conditions and significant outflow of client base, in general, indicators are in line with our expectations. In addition, it is worth noting that some indicators improved markedly during 2016. In particular, the customer base, revenues and data traffic increased by 103% y/y due to lower rate. In our opinion, the Company's results confirm our opinion of the attaining the bottom line of price war among operators. In this connection, we remain our BUY recommendation with a twelve-month target price of 1 390 tenge per share ($ 3.9 per GDR).