Kcell presented financial results for 2017

Andrey KozhokaruJanuary 29, 2018

The Company’s total revenue for 2017 reached 147 229mn KZT (+ 0.13% y/y), EBITDA excluding non-recurring items amounted to 57 321mn KZT (-1.2% y/y), EBITDA margin equaled to 38.9% (39.4% in 2016), Kcell’s net income decreased to 13 434mn KZT (-19.5% y/y).

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The decrease in revenue from voice services was due to the decrease in voice traffic (-1.2% y/y) and ARMU to 2.2 KZT (2.5 KZT in 2016). The significant growth in revenue from data services was observed due to the increase in data traffic (+ 58.5% y/y), while the ARMB decreased to 0.2 KZT (0.3 KZT in 2016). The increase in revenue from value added services (+ 5.2% y/y) was mainly due to an introduction of new OTT services. Kcell’s other revenues increased (+ 9.5% y/y) due to higher sales of contract phones.

Kcell withheld its expenses, mainly due to lower costs of interconnect (-5.8% y/y). Sales and marketing expenses were also reduced to 10 506mn KZT (-4.4% y/y). The annual increase in general and administrative expenses of the Company by 9.7% y/y was mainly due to the tax provision.

The Company's subscriber base included 10 009k contracts as of the end of 2017 (10 001k contracts in 3Q2017). In 4Q2017, 36% of subscribers used bundle offers, which accounted for 69% of quarterly revenue. The Company increased the share of the population covered by 4G to 49% (45% in 3Q2017).

Our opinion:

Kcell’s revenue and capital expenditures for 2017 are in line with our forecasts. Meanwhile, the Company exceeded our expectations for net income (13 434mn KZT-actual, 11 585mn KZT-forecast), mainly due to lower interconnect expenses (1 413mn KZT).

For 2018 the Company expects the growth of service revenue and EBITDA at the level of not more than 5%, with the CAPEX/Revenue similar to 2017. The announced forecast corresponds to our expectations (excluding non-recurring items).

Considering the current price of Kcell (1 670 KZT/share as of January 26, 2018), we keep our Sell recommendation unchanged. The excess of our forecasted earnings for 2017 does not entail any significant change in our estimates. In the medium term, we do not see internal drivers of the Company that can justify the current value.