According to the results of the 1st half of 2021, Kcell's revenue increased by 15% yoy, and net profit increased by 83% yoy, which is generally in line with our expectations. Based on the projected growth of administrative expenses and capital expenditures for 2021 and 2022, we adjusted our target price from 2,190 to 1,810 tenge / share. Taking into account the 33% drop in the share price since the publication of our last recommendation ("Delisting of GDRs and financial results for 2020" dated March 11, recommendation to Sell), we are raising our recommendation from Sell to Buy.
The growth of the main indicators is within our expectations. According to the results of the 1st half of 2021, Kcell's subscriber base grew by 2.1% yoy to 8.03 mn users. The ARPU indicator increased by 9.7% yoy to 1,533 tenge, MOU (minutes of use) decreased by 8.8% yoy to 209 minutes/month.
According to the results of the 1st half of 2021, the company's total revenue increased by 15% yoy to 90 bn tenge. The growth was due to an increase in the subscriber base, as well as an increase in the ARPU indicator. In terms of items, revenue from voice communication services increased by 2.7% yoy and amounted to 37.4 bn tenge (41.4% of total revenue). Revenue from data transmission services increased by 17.9% yoy to KZT 32.4 bn (36% of total revenue). The sale of mobile devices brought the company 16 bn tenge, demonstrating an increase of 40.6% yoy (17.8% of total revenue).
The COGS increased to 29.5 bn tenge, an increase of 7.4% yoy. The growth was mainly caused by an increase in the cost of mobile devices.
Selling expenses amounted to 793 mn tenge, having decreased by 25.3% yoy. The decrease is due to the seasonality of marketing activities from quarter to quarter and a decrease in marketing costs in the 1st half of 2021 compared to the same period last year. However, these expenses will increase in the 2nd half of 2021 due to the launch of new marketing projects.
General and administrative expenses increased by 47.7% yoy to KZT 6.9 bn, mainly due to an increase in labor costs.
The EBITDA indicator, excluding one-time expenses, increased by 19.9% yoy, amounted to 38.8 bn tenge, while the EBITDA margin was at the level of 43.0% (41.1% a year earlier).
Net financial expenses decreased to KZT 4.2 bn, showing a decrease of 13.2% yoy as a result of a 17% decrease in the volume of loans for the first half of the year to KZT 61 bn.
Net profit increased by 83% yoy to KZT 15.6 bn. The almost twice increase in net profit was provided by a more significant increase in revenue (+15% yoy) compared to an increase in cost (+7% yoy), a reduction in sales costs (-25% yoy), as well as a decrease in financial expenses (-13.3% yoy).
The stock price correction provides an attractive entry opportunity. The financial results for the 1st half of 2021 are generally in line with our forecast expectations. By the end of 2021, we forecast the company's total revenue at the level of 191.4 bn tenge (+9.6% yoy). This is generally in line with the forecasts of the company's management, which expect growth of 8-9%.
Only certain items required minor adjustments, namely, an increase in the forecast of net operating income, which for the 1st half of the year amounted to 792 mn tenge compared to losses of 1.2 bn tenge for the same period last year. We also raised our forecasts for the amount of general and administrative expenses, which increased by 47.7% yoy.
In addition, our forecast of capital expenditures for 2021 and 2022 has been increased. According to the company's plans, in 2021, capital expenditures will amount to 22% of revenue, or about 42 bn tenge, an increase of 57% yoy. These capital expenditures will be directed to the integration of base stations together with Kazakhtelecom and Tele2, which is planned to be completed by the end of the 1st half of 2022. After the merger of the networks, the cost of servicing stations should be reduced by almost 2 times, which is also reflected in our forecasts.
According to our forecasts, net profit will amount to about 33 bn tenge, showing an increase of almost 2 times compared to the previous year. This growth will mainly be due to an increase in revenue in the absence of one-time expenses, such as provisions for court claims (4.4 bn tenge) and impairment of assets (5.2 bn tenge), which occurred in 2020.
We note that after the delisting of the company's GDRs from the LSE and AIX stock exchanges, the share price fell by 36% from mid-June to the current moment.
Previously, we have repeatedly noted the overvaluation of the company's shares and recommended their sale. Taking into account the significant drop of the price below our Price target, we consider the current moment attractive to buy the company's shares and raise our recommendation on Kcell shares from Sell to Buy.
We expect an increase in dividends by 18.4% yoy. At the end of 2020, Kcell paid dividends in the amount of 17.6 mn tenge or 87.89 tenge/share, which is almost 2 times more than in the previous year. The payments amounted to 100% of the consolidated net profit for 2020.
According to the company information, by the end of 2021, dividends at the level of 100% of the net profit are unlikely. However, taking into account the expected significant growth in net profit in 2021 and the historical level of dividend payment at the level of 70% of net profit, the dividends, according to our forecasts, will amount to 104.0 tenge/share, an increase of 18.4% yoy. The dividend yield will be about 6%.
