According to the 9M2014 financial results, released on November 15, Samruk-Energy's total revenue increased by 52% YoY to T149bn thanks to the consolidation of EGRES-1, while gross profit margin improved by 4ppts YoY to 28%.
The rise in gross profit (+79% to T42.5bn) was offset by increased administrative expenses (+40% to T11.3bn), net interest expenses (+118% to T9.9bn) and a loss recognized as a result of goodwill impairment related to EGRES-1 acquisition (-T31.3bn). As a result, the company incurred a net loss of T10.8bn against a profit of T28.9bn in the respective period of previous year. Adjusted net profit was Т20.5bn which represents a 29.3% YoY decrease. EBITDA increased by 30% YoY to T59.8bn, but EBITDA margin narrowed to 40.0% from 46.6% a year earlier.
Net debt more than doubled to T383bn compared to T162bn in 2013, which resulted in deterioration of net debt to EBITDA ratio from 1.8x in 2013 to 4.2x in 9M2014 and net interest expense coverage ratio from 10.0x to 6.0x, based on our estimates. Capital spending was 2.6 times higher YoY at T59bn, of which T48bn is attributable to the capital expenditures at EGRES-1.
Our view. Although the bottom line was negatively impacted by the impairment recognition, it is a non-cash item that does not affect cash flows. The declining profitability ratio amid deteriorating credit metrics worry us more. We attribute this to a decline in electricity generation volumes, as tariffs were set to rise in 2013-2015, according to the company's investment program.
During the week yields of Samruk-Energy Eurobonds rose by 13bp on the back of a rating downgrade by Fitch below the investment grade. Now they are indicated at 3.4-3.8% YTM.
We have Samruk-Energy under credit coverage with a stable outlook and a Hold recommendation.