KazTransOil’s 1H2017 results in line with expectations

Altynay IbraimovaAugust 25, 2017

As a result of the first half of 2017, KazTransOil received a net profit of T32.7bn, which is 15% lower than a year ago.

KTO's revenue in the reporting period amounted to KZT107.6bn, an increase of 3% yoy due to a similar increase in revenues from transportation of crude oil to T89.9bn. However, an 18% increase in cost of sales caused by an increase in depreciation costs (+33%) and personnel costs (+12%) completely offset the positive dynamics in revenue: the gross profit margin fell from 45% in 1H2016 to 37% in the reporting period.

Operating profit amounted to T34.1bn, down 21% yoy. The Company increased overall and administrative expenses by 9%.

During 1H2017 the share in the profit of the joint ventures has grown 6 times, amounting to T6.6bn or 6% of revenue.

It is worth noting that the loss from the exchange rate difference for 1H2017 exceeded T1bn, increased by 4% yoy, while the average exchange rate of USDKZT gained 8% over the reporting period.

Net profit of the Company for 1H2017 amounted to T32.7 bn, declining 15% yoy, earnings per share fell from 100 tenge to 85 tenge.

Figure 1. Selected financial indicators

bn tenge

1H2016

1H2017

yoy

1Q2017

2Q2017

qoq

Revenue

    104  

    108  

3%

       54  

     54  

0%

Gross profit

      47  

      40   

-15%

       20  

     20  

0%

Operating profit

      43  

      34  

-21%

       17  

     17  

2%

Net profit

      39  

      33  

-15%

       17  

     16  

-9%

Source: Company data

Operating cash flows amounted to T44bn, slightly lower (-3%) compared to 1H2016, while negative financial cash flows in connection with the payment of dividends amounted to KZT59.6bn. At the same time, the Company increased capital expenditures by 51% and showed negative cash flows from investment activities in the amount of T23.6bn. As a result, at the end of 1H2017 net cash amounted to T29.6bn (-48%).

Our view

1H2017 net income of KTO in the amount of T108bn was in line with our forecast of T109bn and did not bring any additional surprises.

At the same time, the increase in costs (excluding depreciation) by 11% slightly exceeded our expectations including adjustments for 8.5% inflation rate.

In connection with the loss from the exchange rate difference, the Company's actual net profit is below the expected result, while the adjusted net profit falls within our forecast level, exceeding it by only 3%. We note that taking into account the strengthening of the average KZT rate in the reporting period by 8% when more than 90% of the deposits was placed in the tenge, recognition of the loss from the exchange difference of T1bn it was a surprise for us.

Nevertheless, the fundamental indicators are in line with our forecasts, which is why we maintain our “Buy” recommendation on KTO shares with 12M TP of T1 634/share. We still expect the freight turnover to increase in 2017 following the increase in oil production in Kazakhstan. Recall that according to the forecasts of the Ministry of Energy in 2017 oil production will amount to 81mn tons for 1H2017. The country has already extracted more than half (42.6mln tons according to the Committee on Statistics) thus increasing production by 9.7% yoy.