Департамент торговых идей

A 25% correction for 3M due to the negative newsflow background forms a favorable moment for the purchase of KazTransOil shares. Considering the risks of reducing and freezing domestic tariffs by regulator since 2020, the export direction is the main link in the stability of financial indicators, the tariff policy of which is free from the regulation of the antimonopoly committee. We are confident in the continued demand for the KTO pipeline system due to its uniqueness with respect to the eastern direction and we assess the strategic importance of the export potential for the country as a guarantee of steady demand for KTO services. We recommend to Buy KazTransOil shares from 12M TP T1300/share and growth potential of 29%.

The Company produced 147.6 ktons of copper (+ 6% y/y) for 1H2019. Some decline in production was observed at Bozshakol and in the Eastern region and Bozymchak to 47.1 ktons (-5% y/y) and 26.4 ktons (-10% y/y), respectively. The main annual increase in copper production was at Aktogay, where the figure reached 74.1 ktons (+ 22.5%) due to an increase in the volume of ore processing and extraction levels. Zinc production decreased to 18.4 ktons (-26% y/y) due to a decrease in the processing of zinc-containing ore and mining from low-content rocks. For 1H2019 the Company produced 87.7 koz of gold (-2.3% y/y) and 1,522 koz of silver (-5.2% y/y).

According to the results of 1H2019, the Company produced 756 koz of gold equivalent (+ 22% y/y), including 602 koz of gold (+ 35% y/y) and 11 mn oz of silver (-14% y/y). In 1H2019, major increase up to 99 koz of gold equivalent (+ 15% y/y) occurred  in the production at the Omolon field, at the Varvarinskoye enterprise up to 76 koz (+ 16% y/y) and at the Svetloye up to 61 koz (+ 15% y/y).

Aeroflot Group demonstrated growing operating indicators and positive dynamics of income rates in 2018 and 1Q2019. The strategic development of the Group in all niches of the air transportation market due to the low-cost airline Pobeda and premium airline Aeroflot, the expansion of the route network, as well as the implementation of cost-cutting optimization measures should have a positive effect on the Group's total performance in 2019. However, we note the pressure on operating expenses coming from the high cost of jet fuel, which negatively affected the Group's financial results. Considering the seasonality of Aeroflot's business and the projected increase in passenger traffic in 2-3Q2019, we maintain our recommendation to Buy Aeroflot shares with 12M TP 125 RUB/share.

While the economy shows a steady growth of 4% for the third year in a row, the growth rate of SME output is moving at a significantly faster rate close to 9%. As a result, SME became one of the important drivers of economic growth, but due to the low transparency of its activities, there is not enough clarity on the sources of such rapid growth, as a result, the dynamics of the main indicators of SME are poorly or inconsistent with the accompanying indicators for the economy as a whole.     

For 1H2019, the Company produced 6,594 tons of copper at the Kounrad mine (-2.3% y/y), 11 517 tons of zinc in concentrate (-4.5% y/y) and 14 357 tons of lead in concentrate (-0.2% y/y) at the SASA mine. CAML confirmed production forecasts for 2019 at the level of 12 500-13 500 tons of copper, 22 000 -24 000 tons of zinc in concentrate and 28 000-30 000 tons of lead in concentrate.

In 1H2019 separate transportation volume of KazTransOil (KTO) amounted to 22.2mn tons, continuing to show a decline, by 1% yoy this time. Freight turnover on a separate basis slightly increased (+ 0.3% yoy) and amounted to 18.9mn tons. In terms of the consolidated freight turnover, a similar dynamics is observed up to 22.9mn tons (+ 0.2% yoy).

In January-June 2019, the STEI reached 4.3% yoy, which is lower than in 2017 (5.8% yoy) and in 2018 (5.3% yoy) for the same period. According to our estimates, commodity sector’s contribution to the STEI, including transportation and sales of commodity sector products was 3.14pp, which is about 73% growth.

Since the beginning of 2019, Centerra Gold’s shares increased in price by 39% due to the positive trends in the market of industrial and precious metals. We note that the Company significantly improved its operating results in 1Q2019 at Mount Milligan, having received a three-year permit from regulators to use the water resources necessary to increase the production capacity of processing plants, and at Kumtor due to the processing of ore with a high grade and level of recovery. However, we emphasize the continued political risk associated with settling the terms of a strategic agreement previously concluded between Centerra Gold and the government of Kyrgyzstan. Considering the positive dynamics in the gold and copper market, the presence of promising Kemess and Oksut projects with low production costs, as well as reduction of operational risks on Mount Milligan and stable production indicators at Kumtor, we recommend to Buy Centerra Gold shares and increase our 12M TP from 6.75 CAD/share up to 9.35 CAD/share.

KAZ Minerals announced the completion of the transaction initially announced on June 8, 2018, according to which NFC invests 70 mn USD in the Koksay project and receives a share of 19,4% in the project. Koksay is a copper mine located in Kazakhstan with estimated open pit mining. Mineral resources of the field are estimated at 736 mn tons, which implies copper reserves of 3,2 mn tons with a grade of 0,43%. NFC investments in Koksay will be directed to the project feasibility study.