Kazakhtelecom released its financial results for the second quarter of 2025. Quarterly revenue showed a modest increase, while operating margins improved significantly due to lower costs in certain expense categories as well as higher other operating income. We also note a strong improvement in net profit, which was largely supported by gains in some non-operating indicators. As a result, both EBITDA and quarterly net income posted substantial growth, leading to a notable improvement in valuation multiples. In our updated valuation model, we adjusted the key financial indicators, revised net debt, and raised the cost of capital in line with higher market yields. Following these changes, our new target price for Kazakhtelecom’s shares stands at KZT 38,100, implying that the stock is currently trading at a 5% premium. Our recommendation is therefore “Hold.”
(=) Quarterly revenue showed a small increase. The company’s revenue, including government subsidies, reached KZT 139 billion in 2Q25, reflecting growth of 0.9% QoQ and 13% YoY. The largest positive contribution came from data transmission services, which rose by 18% YoY to KZT 71 billion. The “Other” revenue line also provided support, growing by 19% YoY. Meanwhile, revenue from fixed-line and wireless telephony services remained stable at around KZT 25–26 billion per quarter. Mobile device sales decreased by 8% YoY, although they were flat QoQ, totaling KZT 9.6 billion.
(+) Margins improved significantly. The company’s gross margin rose slightly to 23.4% in 2Q25 compared with 22.5% in the prior year. The cost of services declined by 0.2% QoQ but increased by 16% YoY, mainly due to a sharp rise in depreciation and amortization expenses. The “Other” cost line also grew by 16% YoY. Nevertheless, thanks to these structural shifts, the adjusted quarterly EBITDA margin rose sharply from 23.5% in the prior year to 40.4%. It should be noted that last year’s margin was unusually low due to several one-off factors, but even relative to 1Q25 (35%), EBITDA margin showed meaningful improvement. General and administrative expenses fell by 13% YoY, also contributing to stronger profitability. Interest expenses came in at KZT 9 billion, down 30% QoQ and 20% YoY. Another key factor was the marked improvement in foreign exchange results: from a loss of KZT 19.2 billion in 1Q25 to a gain of KZT 9.2 billion in 2Q25. Compared with last year, this line improved almost sixfold. Taken together, these effects drove a strong increase in net profit. According to our estimates, adjusted quarterly net income attributable to shareholders was KZT 14.9 billion (+54% QoQ and +2,060% YoY).
(=) Free cash flow improved but remains negative. Free cash flow in 2Q25 amounted to -KZT 3.2 billion. This was 92% better than in 1Q25, though still KZT 9 billion lower than in 2Q24. The improvement was mainly driven by higher operating cash flow, reflecting a sharp reduction in corporate income tax prepayments that had accumulated in assets after a large tax overpayment in 4Q24 following the disposal of Mobile Telecom-Service (Altel-Tele2). For 1H25 as a whole, free cash flow stood at -KZT 42.1 billion, nearly triple the figure of last year. The difference is largely explained by the sale of the Altel-Tele2 subsidiary, since cash flow reporting does not reclassify this in the same way as the income statement. At the end of June 2025, the company held KZT 106 billion in cash (excluding long-term financial assets generated from the Altel-Tele2 sale). Net debt remained almost unchanged over the quarter at KZT 115 billion.
Our opinion and valuation model changes. Overall, we see Kazakhtelecom’s results as moderately positive. Despite only a small increase in revenue, the absence of Altel-Tele2, and some pressure on costs, margins in 2Q25 were significantly stronger. The FX environment was also favorable, which supported a sharp rebound in net profit. In our valuation model, we updated the main financial indicators, with the most significant change being an improvement in the net cash balance once we account for both debt and the proceeds from the sale of Altel-Tele2, which are currently classified as long-term financial assets. At the same time, we raised the weighted average cost of capital (WACC) to reflect higher yields on 10-year Kazakh government bonds. Aside from these adjustments, the model remains largely unchanged. As a result, our new target price for Kazakhtelecom shares is KZT 38,100, which implies a 5% premium to the current market price. Our recommendation remains “Hold.”