Following the 1Q2018 results, KazTransOil's revenue on a consolidated basis fell by 3% yoy, to T52bn.
If the level of income from pipeline oil transportation maintained at the level of 1Q2017 (T44bn), the income from railway oil transshipment of oil and oil products by rail decreased more than threefold yoy.
A slight increase in costs of sales (+ 0.4% yoy) to T34bn was due to an increase in depreciation and oil taxes (+ 4% yoy), while staff costs were reduced by 3% yoy. Also, the cost of railroad services was significantly reduced (by 13 times).
Operating profit decreased 11% yoy as a result of general and administrative expenses growth by 4% yoy and a decrease in other operating income by 19% yoy, to T15bn.
The net profit of T16bn is inferior to the level of 1Q2017 by 6%.
The 1Q2018 results fully justify our "Hold" recommendation, demonstrating the expected weak revenues from pipeline transportation, while the revenue from railway transshipment decreased more significantly than we expected. Taking into account technical factors (dividend fixing on June 12) and also the risks of further decrease in the railway transportation indicators, we adhere to the "Hold" recommendation of KTO shares with 12M TP KZT1600/share.