KazTransOil: 2017 operational results

Increase of 12M TP to KZT1 682/share, recommendation "BUY".

Altynay IbraimovaFebruary 20, 2018

We confirm our BUY recommendation for KazTransOil shares, assessing the operating results of the previous year as positive and maintaining optimism about the annual financial results. In our opinion, the planned increase in oil production in Kazakhstan provides the Company with a steady increase of revenue, exceeding the rate of growth in costs (4-5%). Despite the need to maintain capital-intensive projects to improve throughput, the Company is able to generate positive cash flows and to pay dividends. We increase our 12M target price to T1682 per share, noting the continued high dividend yield. 

Growth of turnover will ensure increase of revenues. The volume of KTO turnover in the last year increased by 12%. The Company has increased both the physical volumes of transshipment and the transportation distance. Tariffs approved by the Antimonopoly Committee until 2019 according to our most conservative forecasts allow us to expect a 7% yoy increase in revenue in 2017 and a fairly high level of gross profit margin (57%). The pace of growth in oil production in Kazakhstan and quite optimistic plans for the next five years support further improvement of operational indicators.

High dividend yield - 13%. On the eve of the annual results, we reaffirm the idea of buying KazTransOil shares at current levels, focusing on the dividend yield, which according to our forecasts for 2017 should be 13%. We base on the assumption that KTO will pay 100% of its net profit for 2017, assessing this scenario more likely, taking into account the retrospective practice of the Company’s dividend payments.

Increase of 12M TP to T1682/share, "Buy" recommendation. Shares of KazTransOil, despite the historical maximum, remain attractive due to the expected net profit which ensures high dividend yield. We recommend to Buy KazTransOil shares, raising our 12M target price to T1682/share and noting the distinctive dividend history of KTO at the KASE. Meanwhile, we are also optimistic about the future positive cash flows that the Company will be able to generate due to the growing volume of Kazakhstan oil production.

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