Samruk-Energy (SE) plans to cut 2015 capital expenditures by 23% given the weak economic growth outlook according to the press-release of the company published on February 27. The company estimates total capex based on program 'tariff in exchange for investment' at T500bn, of which T94bn is planned for 2015 (23% lower than the company's previous plan).
Over 2009-2014 the company's capital expenditures based on the capped tariffs program amounted to T413bn. This resulted in an increase of available capacity by 1,109MWt or 42% (excluding 500MW block 2 of EGRES-1) and rise of utilization rate by 8.5ppts to 41.2%.
In 2014 SE generated 28.2bn kw/h (-15.8% YoY) of electricity and 7.5mn kcal (+11.6%) of heat energy, extracted 38mn tons of coal (-8.9% YoY) and transmitted 11.2bn kwt/h (-6.2% YoY) of electricity. Consolidated revenue increased by 77% YoY to T252.5bn primarily due to consolidation of EGRES-1. Net profit stood at T15.6bn, 63% lower than in 2013, but 75% higher than the company's plan.
Capital expenditure of EGRES-1 amounted to T202bn over 2009-2014, which allowed to increase available capacity by 1,000MW to 3,500MW due to commissioning of two energy units (#2 and #8). Currently, the reconstruction of the energy unit #1 is in progress and is planned for completion by 2017. EGRES-1's planned capex for 2015 is at T53bn. EGRES-1 lowered tariffs to T8.65 per kwt/h from February 2015, while capped tariffs stand at T8.8 per kwt/h.
Our view. We view the news as credit positive as capex cut will allow to mitigate the negative impact on credit metrics of expected decline in profitability in 2015 due to lower electricity generation volumes and tariffs. The company did not publish its full consolidated financial results for 2014 yet. However, we expect a significant increase of net leverage and decline of interest coverage ratios due to lower profitability. We believe expectations of weak financial results for FY2014 are already priced in yields of Eurobonds of Samruk-Energy, which rose by 215bp to 5.2-5.7% since November 2014.
We have Samruk -Energy under credit coverage with a Stable outlook and a Hold recommendation.