KMG EP completed 2017 with net profit of T195bn and cash position of T1339bn

Altynay IbraimovaFebruary 22, 2018

Today, KMG EP reported financial results for 2017. The data indicate a net profit of T195bn (our forecast is T192bn), which is 48% higher than the result of 2016.

In connection with the rise in oil prices (+24%), the Company managed to increase its revenue by 32% yoy to T956bn. 

The increase in oil prices also entailed an increase in the rental tax rate, MET and ECD, resulting in taxes (other than income tax) increased by 98% yoy and amounted to T288bn.

The increase in production costs, meanwhile, was 16% to T318bn. Over the year, staff salaries, repair and maintenance costs, and refining rates for refineries were raised.

Sales and administrative expenses amounted to KZT135bn in 2017, which is 18% higher than in 2016 due to higher transportation export volumes (+ 22% yoy) in the direction of UAS.

Following the results of 2017, the Company received income from participation in Kazgermunai, PKI and CCEL in the amount of T20bn against a loss of T13bn in 2016.

As a result, the Company's net profit in 2017 was T195bn, an increase of 48% compared to 2016.

The company reduced its capital expenditures compared to 2016 by 3% to T111bn due to a decrease in investments for the construction and modernization of production facilities.

At the end of 2017, the Company's net cash amounted to KZT1339bn, an increase of 14% since the beginning of the year.

Our view

Strong financial results for 2017 are a consequence of favorable conditions prevailing in the oil market in 4Q2017, and do not bring significant surprises to our forecasts. As a result of last year, we expected a net profit of T192bn, which is 2% below the actual profit (T195bn), on the basis of which our dividend expectations (based on the assumptions of the dividend payout ratio of 20%), rose insignificantly from T568/share to T577/share. We also do not exclude the payment of higher dividends (an increase in the dividend payout ratio). Meanwhile, the uncertainty regarding the distribution of cash on dividends remains justifies our "Hold" recommendation of KMG EP preferred shares.