Oil turnover volume of KTO is slightly below forecasts in 1H2018.

Altynay IbraimovaJuly 25, 2018

Yesterday KazTransOil announced operating results for 1H2018. According to the release, oil transportation decreased on separated and consolidated basis. Oil turnover showed a more moderate decline.

Transportation of oil by the Company accounted for 22.4mn, which is 1.3% less than the figure of 1H2017. Consolidated transportation of oil and oil products amounted to 27.992mn tons, down by 3% yoy. Turnover of oil on separated basis shrank by 0.8% amounting to 18.8bn ton/km, while on the consolidated terms there was a reduction of 1% to 22.8bn

Fig.1. Operating results

Parameter

Unit

1H2016

1H2017

1H2018

 HF forecast

Deviation

Volume – cons.

ths tons

28 278

28 924

27 992

 

 

change, yoy

%

-10%

2%

-3%

 

 

Volume – non-cons

ths tons

21 923

22 732

22 427

22 818

-2%

change, yoy

%

-10%

4%

-1%

 

 

Freight turnover – cons

Ton*km

21 684

23 098

22 843

 

 

change, yoy

%

-5%

7%

-1%

 

 

Freight turnover – non-cons

Ton*km

17 836

18 958

18 816

19 373

-3%

change, yoy

%

-3%

6%

-1%

 

 

Source: Company data, HF estimates

Our view

Operating results for 1H2018 are slightly below our forecasts. In 1H2018, there was a decrease in the average oil transfer distance from 860 km in 2017 to 850 km in 1Q2018, and to 830 km in 2Q2018 with our expectations of 850 km, which basically, explains the deviation from our forecasts of the turnover indicators. We consider a 1% reduction in freight turnover acceptable and maintain our HOLD recommendation for KTO shares with 12M TP of T1600/share with a current upside potential of 16%.

We also note an inverse correlation of the level of oil production in Kazakhstan and the volume of transportation of the KTO, which was not previously noted. Thus, if for 1H2018 oil production in the country in physical terms increased by 7.6% yoy and amounted to 38.8mn tons (data of the Committee on Statistics), the volume of oil transportation by KTO showed the reverse dynamics. At the same time in 2Q2018, the Company increased the share of oil transportation from 50% to 70% that was accompanied by a 28% qoq decline in oil production of Kazakhstan.