KazTransOil: 1Q2016 preliminary results overview

Raising price target to T1246, Buy.

Askar AkhmedovApril 28, 2016

The dividend suggested by the Board of Directors, 1Q2016 oil extraction volumes and 1Q2016 financial and operational results exceeded our expectations. We reviewed our forecasts by modelling higher revenue estimates. We reiterate our Buy rating and revise our 12-month target price to T1246 per share.

1Q2016 results above expectations. The major positive aspect of the first quarter was a shallower reduction in freight turnover (-0.6% yoy). In addition, the company's revenues grew by 1.5%, compared to the 1Q2015. We expected a much steeper reduction in both cases: 8.4% and 7.0%, respectively.

Dividend story continues. The Board of Directors of KazTransOil proposed to pay a dividend of T133 per share (114% of the Group’s FY2015 net income) – 10.2% higher yoy and 8.0% above our expectations. In this regard, KTO stands out in the Kazakhstani market, continuing its dividend story, despite the worsened economic conditions.

Resilience of oil production in Kazakhstan. Statistical data for the 1Q2016 showed a decline in oil production of only 1.3% yoy, against our expectations of 5.0% decline and Ministry of National Economy’s (MNE) forecast of 6.9% reduction. Rising oil prices that have been trading above $40 also positively affected the output, allowing more Kazakhstani oil fields to maintain production.

Kashagan and Tengiz risks. We identify Kashagan and Tengiz that are expected to launch and expand in 2016 and 2020, respectively, as key drivers of revenue growth for KTO. However, if these two projects face 2-year delays, our estimate of the fair value of KTO share declines to T1168.

Raising price target to T1246, Buy. Higher expected revenue, stronger dividends and less than expected decline in oil production allow us to upgrade the outlook. We raise the target price by 11.5% to T1246, which is 34.0% higher than the current share price on KASE. Together with the dividend, the total potential yield is expected at 48.3%.

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Disclosure: the analyst own shares of the Company.

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