Kazakhtelecom financial results for 1q2017.

Andrey KozhokaruJuly 19, 2017

Kazakhtelecom presented results for 1q2017.

According to the statements, company increased revenue by 2.1% relative to 1q2016, from T49 023mln to T50 061mln. An increase in cost of goods sold was 4.8%, from T29 903mln to T31 336mln. Operating profit demonstrated moderate growth of 3.8%. Administrative expenses decreased by 24%, to T3 938mln. Company’s net income, excluding income from divestment of Altel subsidiary in 1q2016, decreased by 19% to T8 144mln. Main reasons for latter decrease attributed to net foreign exchange loss (T2 326mln), share in losses of associate (T1 942mln), and absence of compensation for provision of services in rural areas. In general, percentage changes of operating metrics for the quarter correspond to our 2017 forecasts. Considering revenues in details, data transfer services and rendering of wireline and wireless phone services demonstrated opposite results, as expected. The former increased by 3.8% and the latter decreased by 8.4%. For the same period, rent of lines revenue increased by 98%, whereas interconnect revenue decreased by 18.7%. Considering cost of goods sold sections, expenses on rent of channels and interconnect decreased by 32% and 29%, respectively. On the contrary, cost of rental of equipment increased 4.4 times relative to the same period in 2016.

In publication company noted loss of T1.9bln for the quarter from joint venture on the base of Tele2 and Altel. In comparison, loss from JV for the same period in 2016 related to Kazakhtelecom was T1.3bln. We mentioned earlier that particular JV presents considerable financial burden on company’s results. 19 July 2017 parent company Tele2 AB presented interim consolidated results of the whole group for 6M 2017. In report, Tele2 AB highlighted progress made by Kazakhstani subsidiary. According to the statements, for 6M 2017 integration of networks of Tele2 and Altel completed for 82%, customer base increased by 239 000 users, EBITDA margin increased to 20.7% versus 10.3% in 2016. Tele2 AB expects growing synergistic effect in Kazakhstani JV from integration of resources of Tele2 and Altel.

Our opinion:                   

Despite some volatility in revenues and cost of goods sold sections, main cumulative indicators for the quarter correspond to our expectations for 2017. Concentrating attention on operating performance of the company, we do not spot any considerable deterioration in fundamental metrics or operating environment. Company demonstrates stable results and in the long-term perspective, positive effect from JV with Tele2 is possible. Among potential risk factors for the business are deterioration in macroeconomic environment, high degree of competition in telecommunications industry, significant depreciation and capital expenditures, and continuing losses attributed to JV. We keep our Hold recommendation.