In the 1st half of 2021, the company's net profit increased by 89% yoy to KZT 58.1 bn due to the faster growth rates of income compared to costs, reduction of other expenses, as well as due to the compensation from Telia and Turkcell in the amount of T9.4 bn. Within this, we forecast an increase in dividends by the end of 2021 by 87% yoy to 3,230 KZT/share. We maintain the recommendation to Buy Kazakhtelecom shares from 12M Price target 39,398 KZT/share.
Significant growth of financials. The company's total revenue for the first half of 2021 increased by 15% yoy to KZT 282.5 bn. The largest revenue (49% of total revenue) was provided by data transmission services, which amounted to 137 bn tenge, which is 11% yoy more than the same indicator for the previous year. In the second place (28% of total revenue) is the income from wireless and wired telephone services, which increased by 7% yoy to 79.5 bn tenge. This is followed by income from the sale of equipment and mobile devices (6% of total revenue), which amounted to 15.6 bn tenge, an increase of 37% yoy.
The cost of sales increased by 10% yoy to 172 bn tenge. At the same time, such large items as depreciation and amortization (32% of the cost) and labor costs (24% of the cost) increased by 6.2% yoy and 8.9% yoy, respectively. The cost of selling SIM cards, scratch cards, starter packs, and mobile devices also increased significantly (+44% yoy).
General and administrative expenses amounted to KZT 21 bn, an increase of 16% yoy, mainly due to an increase in labor costs. Sales expenses amounted to 5.5 bn, a decrease of 3% yoy.
It should be noted that in May 2021, the company received compensation in the amount of US $ 22 mn or 9.4 bn tenge from Telia Company A. B. and Turkcell Iletişim Hizmetleri A.Ş. within the framework of arbitration proceedings initiated by Kazakhtelecom JSC in 2019 in the London International Arbitration Court on claims related to violation of certain guarantees contained in the Contract for the Purchase of Shares of Kcell JSC dated December 12, 2018. Thus, the operating profit for the reporting period increased by more than 48% yoy to 97.3 bn tenge.
Kazakhtelecom's financial expenses decreased by 8% yoy to 23.4 bn tenge due to a decrease in the total volume of loans by 6% during the 1st half of the year.
Due to the faster growth rates of income compared to cost and reduction of other expenses, as well as receiving compensation from Telia and Turkcell, net profit for the first half of 2021 increased by 89% yoy and amounted to 58.1 bn tenge. At the same time, the adjusted net profit increased to 48 bn tenge, showing an increase of 58.6% yoy.
Increasing our forecasts. Taking into account the results for the 1st half of 2021, we have increased our forecast expectations for total revenue, and by the end of 2021, we expect it to grow by 7% yoy to 565 bn tenge.
Taking into account this growth, as well as compensation from Telia and Turkcell, we forecast an increase in net profit in 2021 by almost 2 times to 116 bn tenge.
In accordance with the company's dividend policy, if 30% of net profit is allocated for the payment of dividends, by the end of 2021, the dividends may amount to about 34.6 bn tenge or 3,230 tenge/share (+87% yoy). At the same time, the dividend yield will be about 8%.
According to our forecasts, in 2021, capital expenditures will increase by 30% yoy and amount to KZT 150.6 bn, which corresponds to the company's plans for capital expenditures at the level of 22-26% of revenue.
