KazMunayGas published its financial statements for Q1 2025. Overall, the company’s financial performance can be assessed as neutral. Revenue grew slightly, while in USD terms it showed a YoY decline. Net profit also dropped significantly, however, thanks to joint ventures, adjusted EBITDA and free cash flow posted strong growth. As a result, the Net debt / EBITDA ratio continued to decline — reaching multi-year lows. In our valuation model, we revised the oil price forecast for the coming years downward. However, oil-related expenses, including taxes, also decreased, and forecast administrative costs were lowered. We also slightly improved our capex forecasts, as capital expenditures turned out to be relatively low in the first quarter. As a result, our updated target price for one KazMunayGas share is 17,900 KZT, implying an upside potential of 22% from the current market price. Recommendation — “Buy”.
(=) Slight revenue growth. In Q1 2025, KazMunayGas generated revenue of KZT 2.2 trillion, up 0.6% YoY and 13% QoQ. A 11% YoY decline in crude oil revenue was offset by a 23% YoY increase in revenue from petroleum products, driven by a 42% YoY increase in refining volumes at the Petromidia refinery. QoQ growth in revenue was largely supported by a 26% increase in crude oil sales, stemming from a 31% QoQ rise in production at the Kashagan field, along with a 1.6% increase in the average quarterly oil price. The average USD/KZT exchange rate also rose by 2.1% QoQ and 12% YoY, lifting the average tenge-denominated oil price by 3.3% YoY. Share of income from joint ventures rose 50% QoQ and 20% YoY, driven by stronger net profits from CPC and MMG, especially in comparison to CPC’s abnormally weak previous quarter and the same period last year. TCO’s profit increased slightly by 3.9% YoY, but fell 15% QoQ, despite oil production rising 25% YoY and 48% QoQ. This indicates that TCO has started to realize initial benefits from its expansion project, and output is likely to grow further this year. Total revenue, including other income, amounted to KZT 2.5 trillion (-1% YoY, +14% QoQ)
(=) Net income declined, but strong growth in EBITDA and free cash flow. Net operating expenses in Q1 rose 4.7% YoY and 18% QoQ. However, a large part of this dynamic is related to FX gains/losses. Excluding this factor, expenses rose only 6.9% QoQ and 2.6% YoY, mainly due to increased production costs, taxes, and D&A. Meanwhile, the cost of purchased oil and petroleum products fell by 4% QoQ due to lower market prices. Production costs rose by 10% YoY. As a result, operating profit came in at 285 billion KZT (-6.5% QoQ and -30% YoY). However, adjusted EBITDA rose by 23% YoY and 57% QoQ to 553 billion KZT, with margin increasing from 17% in Q4 (20% in Q1 2024) to 23%. EBITDA growth was mainly driven by higher dividends from JVs and an increase in D&A. Net income attributable to KMG shareholders was 197 billion KZT (-13% QoQ and -35% YoY), or 322 KZT per share. Free cash flow reached 283 billion KZT (+96% YoY and +52% QoQ), mainly due to JV dividends. Net debt decreased by 14% QoQ and 38% YoY. The Net debt / EBITDA ratio declined from 0.64x to 0.52x — a new low for at least the past ten years.
Our opinion and valuation model changes. KazMunayGas’s financial results can be assessed as neutral amid stagnating oil prices. Revenue grew only slightly YoY, and excluding the tenge devaluation, the result would have been negative. Nevertheless, adjusted EBITDA and its margin, as well as free cash flow, showed substantial growth — primarily due to increased dividends from joint ventures. Against this backdrop, the Net debt / EBITDA ratio continues to decline. In our valuation model, the main negative factor was the downward revision of the oil price forecast for the next five years. Due to Brent falling below $70, short-term forecasts in the model have worsened by 9%. Long-term forecast prices ($68–73) remain unchanged. This led to a moderate decline in projected revenue, but at the same time, we expect a reduction in some expenses — primarily taxes (which depend on oil prices) and administrative costs, which showed a relative decrease in Q1. Net debt was also adjusted to reflect the recent dividend payment, and forecast capex was lowered, along with WACC, amid lower government bond yields compared to previous expectations. Taken together, these changes led to a slight increase in our target price for one KazMunayGas share to 17,900 KZT, implying 22% upside. Recommendation — “Buy".