Kcell presented results for 6M 2017

Andrey KozhokaruJuly 20, 2017

Net income decreased by 87% to T600mln in 2q2017

Net sales amounted T36 027mln in 2q2017 and was 1.1% lower YoY. EBITDA, excluding non-recurring items, declined by 6%, from T14 338mln in 2q2016 to T13 484mln in 2q2017. Operating profit, excluding non-recurring items, declined by 2.1%, from T7 914mln to T7 747mln. Net income decreased by 87% to 600mln.

Significant decrease in net income and increase in general and administrative expenses attributed to a one-off adjustment related to an additional tax provision in 2q2017. According to the company, total tax claim equals T9bln, of which T5.8bln is for unpaid taxes and T3.2bln is for fines and penalties for late payment. Kcell states that it will use all available mechanisms to combat this claim, including court litigation. According to company’s management, it is highly unlikely that full amount of claim will become payable after appeal process.

At the end of June 2017, Kcell’s customer base amounted 9 992thsd users, which comparable to the number of users at the end of December 2016 (9 986thsd). According to company’s CEO, currently Kcell does not intend to grow its customer base aggressively and current number of users fits company’s plans.

Operating results for the quarter, excluding non-recurring items, were broadly in line with our expectations. For reporting period, we continue to see weak financial performance relative to 2016. Nevertheless, if we look at QoQ results, cost of sales was stable, selling and marketing expenses decreased by 7%, revenues increased by 1.4%. Moreover, operating income, excluding non-recurring items, increased by 3.3% QoQ. According to assertions made during the 2q2107 conference call, Kcell’s executive management expects flat growth in 2017. The latter would require considerable improvement of operating results in 2H2017.

Our opinion:   

Published results confirm our expectations of slow-motion recovery of company’s fundamental metrics. Kcell tries to stabilize expenses and expects an increase in 2H2017 revenues related to tariffs adjustments. In favorable market conditions, we do not exclude significant improvement in results relative to 1H2017. Company actively develops additional services and performs well in corporate segment. However, currently we do not see any fundamental improvements. We keep our Hold recommendation.