KEGOC presented 2q2017 results

Andrey KozhokaruAugust 14, 2017

In 2q2017 Company’s revenue increased by 23.5%, cost of goods sold increased by 18.6%, and operating profit reached 12.8bln.

In 2q2017, Company increased each revenue item. Main nominal increase appeared from power transmission, which increased by 21% to 22.3bln. Revenue from realization of purchased energy increased substantially from 2.57bln in 2q2016 to 4.1bln in 2q2017. Latter revenue increase were compensated by similar growth in cost of purchased energy. Expenses on technological consumption of energy raised by 27% to 3.57bln. Interest expenses more than double, reaching 2.56bln. In 1H2017 Company spent 17.5bln on loans repayment versus 10.4bln a year earlier.

The main pressure on net income in 2q2017 appeared from negative foreign currency effects (4.1bln) and expenses on loss reserves for accounts in Delta Bank and Kazinvestbank (1.26bln).

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Our opinion:

Company’s results for 2q2017 were broadly in line with our expectations. Operating metrics demonstrate positive dynamics. As of June 30, 2017 Company has decreased its liability before IBRD, EBRD by 16% to 104.5bln versus 122.5bln at the end of 2016. Considering current share price, we keep our Hold recommendation. We think that liabilities in foreign currency will remain ongoing source of risk for the Company. For now, we do not see any growth drivers for KEGOC.