Департамент торговых идей

In the first quarter of 2019, inflation has increased by 1.3% since the beginning of the year, compared with 1.8% in the same period last year. At the same time, we estimate the contribution of the administrative factor in regulating tariffs of state monopolies at around 1% in the first quarter, which led to an unusually strong slowdown in inflation. This indicates the presence of hidden risks in the consumer market, due to its artificial suppression. 

In 2018, the Company's revenue grew by 5.95% y/y, reaching T222.7bn. Cost of sales increased by 1.54% y/y, reaching T154bn. General and administrative expenses as well as sales expenses in 2018 increased by 8.67% y/y to T23.3bn and by 15.4% y/y to T4.4bn, respectively. Operating profit of Kazakhtelecom increased by 11.5% y/y to T37.1 bn. The net profit of the Company for the reporting period amounted to T42.9bn (+73% y/y). The increase in operating and net income in 2018 was mainly contributed by the growth of revenues from services rendered to the state (+8.6% y/y) and corporate sectors (+8.2% y/y).

On March 22, the agency affirmed the credit ratings of Kazakhstan at BBB, the outlook «Stable». The economic growth forecast for Kazakhstan is slightly increased to 3.4% in 2019 from 3.3% in the previous rating action.

Nostrum yesterday reported 2018 result. The company's revenue was $390mn, down 4% yoy. The reduction in revenue was due to a decrease in production, which averaged 31.3ths bopd versus 39ths bopd in 2017 (-21% yoy). The company's net loss increased 5-fold to $121mn.

In January-February 2019, the STEI levelled at of 3.6% yoy, which is lower than in 2017 (3.7% yoy) and 2018 (5.2% yoy) the same period. According to our estimates, the contribution of commodity sector to the STEI, including transportation and sales of commodity sector products, was 2.58pp, which is about 72% growth.

We updated the KAP operating and financial indicators for 2018FY and added to the calculation of the target price a share of participation in associates and joint ventures whose profits are not included in the operating component of the company. Our target price has changed slightly, reaching $16.55/share versus the previous $16.50/share. Assessing the company's financial condition as stable and noting that our forecasts correspond to the company's plans, we expect positive cash flows over the next five years. We are also optimistic about the company paying a dividend in the amount of T266/share and recommend to Buy KAP shares, waiting for the quotes to strengthen in anticipation of dividend fixation.

Since the beginning of the year, KAZ Minerals’ shares have increased in price by 19% due to the positive trend in the industrial metals market as the result of positive expectations of the trade negotiations between China and the United States, a decline in global inventory and an increase in demand for metals. We also note the Company's strong operating results for 2018, which were higher than our forecast data. Due to an increase in production growth rates at the 2nd sulphide factory at Aktogay, KAZ Minerals will exceed copper production of 350 kt in 2022. The main key factor of the long-term growth is the Baimskaya project, thanks to which the Company will achieve an annual average increase in copper production of 7% y/y in the period 2026-2029. Despite significant capital investments in the Baimskaya project and in the expansion of the production of the 2nd sulphide factory at Aktogay, the net debt/EBITDA ratio will not exceed, according to our estimates, 2.5x. Given the positive outlook for copper prices, low production costs and large-scale growth projects, we retain our Buy recommendation and raise our 12M TP from 720 GBp/share to 760 GBp/share.

The company’s revenue for 2018 amounted to 1 882 mn USD (+ 4% y/y), with gold sales of 1 198 koz (+ 9% y/y) and silver sales of 25.7 mn oz (-3% y/y), which corresponds to the dynamics of the Company’s production indicators. The growth in revenue was mainly due to an increase in gold equivalent production by 9% y/y. Cost of sales remained virtually unchanged and amounted to 1 096 mn USD (-0.9% y/y), reflecting the positive effect of the weakening of the Russian ruble by 7% y/y, which compensated for the growth in production and sales.

The Company’s total revenue for 2018 reached 149 701 mn KZT (+ 1.5% y/y), EBITDA excluding non-recurring costs amounted to 50 943 mn KZT (-8.3% y/y) with EBITDA margin of 34% (37.7% in 2017), Kcell's net profit for the reporting period decreased to 8 531 mn KZT (-27.1% y/y).

Nowadays the State budget approved by the Parliament, is incomplete and do not conform to the international standards of accounting and reporting. In accordance with them, the consolidated State budget must include all revenues and expenses. In particular, it should include the receipt and expenditure of funds of National fund, as well as public and quasi public expenditures to be financed by the National Bank, national holdings "Baiterek", Samruk-Kazyna, ENPF, GFSS, and other State funds. In terms of consolidated budget, we tried to assess how recent initiatives to increase public spending would affect the economy in General, as well as the economic, fiscal, and monetary policies carried out by the Government and The National Bank.