Increase of subscription fees supports revenue growth

Bakai MadybaevSeptember 20, 2013

On September 4, Kazakhtelecom held a conference call for analysts to discuss its performance during the first half of the year. The results came out as moderately positive.

  • Decline in intercity and international voice traffic was offset by an increase in subscription fees for fixed phone line users. As a result, fixed voice revenue rose by 4.4%, instead of an expected decline. Revenue from data transfer keeps growing rapidly and has surpassed the revenue from voice services, fixed and mobile combined.
  • Kazakhtelecom plans to launch its own GSM-network in 6-7 major cities, including Almaty and Astana, by the end of the year, which will allow the company to re-enter the mobile voice market and expand the target audience for the LTE services. However, the company admits the intense level of competition on the market and sets up a moderate target of capturing 14% of the market by 2016.
  • In the first half of the year, according to the financial statements, the company’s capital expenditures lagged behind the plan for the year end. However, according to the company management, installation works had been executed but had not been paid for yet. Contractors agreed to receive payments after the final completion of installation works. There is still a possibility of postponement of a small part of Altel’s capital expenditures until the next year.
  • The company plans to refinance a large part of its debt by the end of the year, which, based on our estimates, could decrease interest expenses by 17-18% and add about T1.6bn to profit annually.
  • Kazakhtelecom’s management did not share any news on its possible stock buyback program. According to KASE data, the company continued buying back its shares in 1H2013, although, in minor portions. We believe the company would buy back its stock in order to rather maintain stock prices on the current level, than for the sake of increasing valuation. Short-term price spikes on buyback rumors are still possible.
  • We raised our projections on revenue and profit for the year end by 4.8% and 17.5%, respectively. As a result, our estimate of the stock fair value increased to 17,000 tenge per common stock and 13,600 tenge per preferred stock. We expect the company to pay small dividends of about 235 tenge per common stock in June 2014 and 300 tenge per preferred stock in December 2013. We recommend buying the stock for long-term investors only, as the company’s profit will remain low in the next two years but should benefit from large capital investments made into the expansion of the telecom infrastructure.

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