Kazakhtelecom: 2016YE financial results

Dias KabyltayevApril 26, 2017

According to consolidated financial statements for 2016, Kazakhtelecom’s net profit from continuing operations decreased by 43.5% y/y to T14.8 bn. The Сompany's shareholders approved the payment of T4.5 bn of dividends or 404 tenge per share, which amounts to 30% of the Company's net profit for 2016.

According to the published financial statements, Kazakhtelecom’s revenue increased by T16 billion (8% y/y), which is in line with our expectations, and mainly due to the revenue from the data transmission, rent of link equipment and interconnection services. Revenue from telephone services, as we expected, continued to decline. Cost of services also increased by T11 billion (9% y/y), mainly due to an increase in base stations’ and staff expenses. Net income from discontinued operations more than doubled, almost entirely due to a disposal of Altel for T40 billion.  As a result of a significant JV’s loss recognition in the amount of T13.6 billion, the net profit from the continuing operations decreased by T11.5 billion (43.5% y/y).

Fig.1. Financial indicators for 2015-2016.      
Thousand tenge 2016 2015 yoy
Revenues 205 819 968 189 754 329 8%
Cost of services 138 292 361 127 254 556 9%
Operating profit 42 807 770 36 455 549 17%
Net profit* 14 872 009 26 357 154 -44%
Source: Company data      
* From continuing operations      

Altel and Tele2 continued to incur the losses, in which Kazakhtelecom’s share for 2016 amounted to T13.6 billion, which is 84% higher, than in 2015.

Also due to the reclassification of Altel’s Development Bank of Kazakhstan and Sberbank credit lines for a total amount of T27 billion, the total debt increased by T25 billion (79% y/y).

Additionally, at the annual meeting, held on April 25, shareholders voted to pay dividends in the amount of T4.5 billion or T404 per share, which equals to 30% of the Company's net profit for 2016. Last year, the amount of dividend payment was at 15% of net profit or T331 per share.

Our opinion

The continuing stagnation of Altel’s financial indicators does not yet allow the Company to receive positive results from continuing operations and does not ensure the improvement in near future, given the high competition in telecommunications market. The actual financial indicators were below our expectations, in particular, the net profit from continuing operations was actually below our forecast by 38%, mainly due to a larger than we expected loss from Altel’s operations. In this regard, we maintain our “HOLD” recommendation, while taking into account the Company's weak factual financial results, we put our 12M TP on review.