KazMunayGas released its financial statements for the third quarter of 2025. Overall, the company’s report can be considered neutral. Revenue increased despite declining oil prices, mainly due to the depreciation of the tenge against the dollar, which hit its lowest point at the end of September. This allowed the company to show growth in net profit. However, the company’s operating margin deteriorated slightly, while quarterly EBITDA and free cash flow showed modest growth. The company’s debt burden declined significantly once again, but largely thanks to the weakening of the tenge. Considering the strengthening of the tenge in the fourth quarter, we will likely see some deterioration in results by year-end. In our valuation model, we lowered KazMunayGas’ projected operating margin and the projected exchange rate of the dollar. We also updated our oil price forecasts; on the other hand, the weighted average WACC declined. As a result, our updated target price for one KazMunayGas share stands at 23,200 KZT, implying an upside of 5% from the current market price. Recommendation — “Hold.”
(+) Revenue increased despite declining oil prices. KazMunayGas’ revenue in the third quarter of 2025 amounted to 2.6 trillion tenge, up 21% compared to 2024 and 13% higher relative to the previous quarter. Revenue from crude oil sales increased 19% y/y despite stagnant crude production among consolidated entities and a 14% y/y decline in the average dollar oil price. However, the depreciation of the tenge caused the tenge-denominated oil price to fall by only 3.1% y/y. Meanwhile, revenue from petroleum product sales grew 30% y/y due to further increases in quarterly refining volumes at Romanian refineries (+8.2% y/y). Quarterly revenue growth was largely driven by a 16% q/q increase in crude oil sales amid a 5.8% q/q increase in the tenge oil price. Notably, total production volume across operational assets was nearly unchanged, while Tengiz showed +55% y/y and +9.1% q/q growth, indicating the launch and continued ramp-up of the future expansion project. Against this backdrop, equity income from joint ventures increased 52% y/y and 30% q/q. This growth was largely enabled by Tengiz, where quarterly net profit surged 135% y/y and 89% q/q to reach 130 billion tenge — the best result in two years. Significant profit growth was also observed in MMG and CPC. As a result, total KMG revenue including other income reached 2.8 trillion tenge (+23% y/y and +12% q/q).
(=) Operating margin deteriorated, but net profit continues to grow. Net operating expenses in the third quarter increased 20% y/y and 9% q/q. The most notable annual expense growth came from the cost of purchased oil and petroleum products (+47% y/y). This was mainly due to rising material and inventory expenses and increased refining volumes, which also contributed to revenue. Expenses for taxes other than income tax also increased significantly (+20% y/y), as did transportation costs (+25% y/y). The primary reason behind these expense increases was the depreciation of the tenge against the dollar. On the other hand, foreign exchange gains rose sharply, becoming one of the main contributors to net profit growth. Currency revaluation generated six times more profit than a year earlier. As a result, operating profit reached 545 billion tenge (+36% y/y and +29% q/q). Adjusted EBITDA, excluding FX gains, rose only 0.7% y/y and 4.1% q/q to 739 billion tenge, while the EBITDA margin declined from 28% in the second quarter (31% in 3Q24) to 26%. Dividend income from joint ventures increased 16% y/y to 289 billion tenge. Net income attributable to KMG shareholders amounted to 427 billion tenge (+37% y/y and +26% q/q), or 699 tenge per share. Free cash flow reached 413 billion tenge (+1.1% y/y and +3.6% q/q). Despite a 34% y/y and 57% q/q increase in capital expenditures, free cash flow grew slightly thanks to higher dividends from joint ventures. KMG’s net debt decreased 31% q/q and 51% y/y amid a sharp increase in the tenge value of foreign currency held on company accounts. The net debtto-EBITDA ratio continues to decline: from 0.45x to 0.31x — a new record low for at least the past decade.
Our opinion and valuation model changes. We assess KMG’s financial results as neutral, given declining oil prices. Quarterly revenue increased in tenge terms, but this occurred in part due to the depreciation of the tenge against the dollar. On the other hand, we note the decline in EBITDA margin and only modest growth in EBITDA and free cash flow. On the positive side, production volumes in Tengiz continue to increase, which positively impacts the company’s performance. Net profit increased and net debt decreased, but much of this was driven by the weaker tenge. In the fourth quarter, we will likely see a negative effect from currency strengthening. In the valuation model, the primary change was lowering projected oil prices for the next five years after updates from investment banks published on Bloomberg. Rising cost of goods also negatively affected valuation, leading to a reduction in projected operating margin. Another important factor was the recent sharp drop in the exchange rate of the dollar, which lowered the company’s final valuation in tenge terms. On the other hand, the weighted average WACC decreased due to a lower equity risk premium and declining yields on 10-year U.S. Treasuries. Ultimately, these changes collectively led to an updated target price for KazMunayGas shares of 23,200 KZT, implying a 5% upside from the current market price. Recommendation — “Hold.”