Kcell's main revenues retained their trends in 1Q2019. With a decrease in voice traffic by 6.3% y/y, data traffic increased by 34.7% y/y, which was reflected in a decrease in revenue from voice services to KZT 17 851 mn (-5.1% y/y) and an increase in the revenue from data transfer services to KZT 11 822 mn (+ 2.7% y/y). Other income of the Company decreased by 14.8% y/y to 3 526 mn KZT due to a decline in sales of mobile phones due to insufficient inventory.
Cost of sales decreased by 2.1% to KZT 23 341 mn mainly due to lower phone sales, and also due to lower rental costs due to the application of IAS 16, which, in turn, was offset by an increase in amortization costs. Sales and marketing costs fell to KZT 2 120 mn (-10.3% y/y). General and administrative expenses increased by 295.4% y/y to KZT18 086 mn due to the recognition of a fine on termination of the Network Sharing Agreement with Kar-Tel in the amount of KZT14 552 mn, which was recorded as a one-time expense.
Capital expenditures decreased to KZT 2 132 mn in 1Q2019 versus KZT 2 642 mn in 1Q2018, the ratio of CAPEX to sales was 6.1% (7.1% in 1Q2018)
Our opinion:
As positive financial factors in the results for 1Q2019 we note a decrease in marketing and financing costs. The decrease in operating income and net profit is largely attributable to one-time expenses. The focus of the Company on quality customers led to an increase in ARPU by 9.5% compared to the same period of 2018. The company noted growth in the corporate segment, which provided a 14% increase in B2B revenue and a 33% increase in revenue from business solutions.
We expect the stabilization of the financial and operating results of the Company during the current year due to the synergistic effect of consolidation with the main shareholder of the Company. We maintain our Buy recommendation and 12M TP 2 225 KZT/share.
