KazTransOil: 2016 operational results review

Increase of 12M TP to KZT1 634/share, recommendation "BUY".

Altynay IbraimovaFebruary 16, 2017

In 2016 KazTransOil showed results which are in line with our expectations and reported on the reduction of transportation and freight turnover volumes. At the same time, more bold forecasts of the Ministry of Energy of the Republic of Kazakhstan about increase of oil extraction in Kazakhstan in 2017-2021 and our expectations about increase in the average oil pumping distance in 2017 allow us to revise the forecast of KTO revenues. At the same time, the Company's commitment to the rising dynamics of dividend payments, in our opinion, will remain. We assess, that there is a strong possibility of a higher dividend payout than the level of the previous one (+27%). We confirm the “Buy” recommendation, and increase our target price to Т1 634 per share. 

The freight turnover has shrunk in the forecasted range. As we expected, the decline in oil transportation volumes by 8% yoy due to a reduced production volumes in Kazakhstan by 1.8% was offset by an increase in average pumping distance by 4%, which made it possible to mitigate the downward trend of freight turnover. Because of this, we estimate operating results of KTO as neutral, and we expect a further increase in the average pumping distance by 5% in 2017 with a following growth by 1% in 2019.

The growth of oil production in Kazakhstan is a support for the KTO. A volume of oil production in Kazakhstan is one of the main drivers for KTO. Ministry of Energy of the Republic of Kazakhstan expects an increase of oil production in the country by 4% yoy to 81 mln tons, with a further increase of production up to 87 mln tons in 2019-2021. Forecasts of the Ministry of Energy of Kazakhstan and the parallel increase in the average oil pumping distance allow to have higher expectations for KTO revenues.

One of the most attractive dividend histories at the KASE. The dividend history of KTO allows us to take into account a possibility of dividend payout as a priority alternative. In anticipation of the annual results, we believe, that the dividend attractiveness of KTO shares is high. According to the historical data, we assume that the Company will maintain the dividend payout ratio on the level of the last year (100% of the net consolidated profit in 2015), and the amount per share (T169.6) will exceed the dividend of the previous year by 27%.

An increase of the target price to Т1 634, a “Buy” recommendation. A higher growth rate of the oil production in Kazakhstan together with an increase of the average oil pumping distance and an attractive dividend payout policy, which is one of the best among the companies listed on the KASE, allow us to increase the target price to Т1 634. A potential growth of 20.7% from the current price gives us a reason to reiterate the “Buy” recommendation on KTO shares.

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