KazTransOil JSC has published its financial results for the first quarter of 2025. Quarterly revenue showed only slight growth, while cost of sales increased at a faster pace. As a result, the company’s operating margin deteriorated compared to the same period last year. Net profit declined by only 13% YoY, while free cash flow turned positive — in contrast to Q4 — due to lower capital expenditures. Overall, the report can be viewed as moderately negative. In our valuation model, we updated tariff assumptions and adjusted the company’s net debt following the dividend cut-off. We also lowered the WACC due to lower government bond yields versus previous expectations. As a result, our updated target price for KazTransOil shares is KZT 1,040, offering 30% upside. Recommendation — “Buy.”
(=) Slight revenue growth. KazTransOil’s quarterly revenue increased by 1.9% YoY but decreased by 4.6% QoQ, totaling KZT 78 billion. The YoY growth was supported by various revenue segments. Crude oil transportation revenue rose by 1.3% YoY but fell 3.7% QoQ, due to a 6.7% YoY drop in crude oil transportation volumes. This time, the company released a limited operational report. While domestic oil transportation grew by 3.5% QoQ, it is likely that volumes through the key Atyrau–Samara export pipeline declined significantly. Notably, the 11% increase in export tariffs did not lead to stronger revenue, which further signals a drop in export volumes. The second-largest revenue stream — pipeline operation and maintenance services — increased by only 0.8% YoY and decreased by 4.9% QoQ. Water transportation revenue grew by 6.7% YoY. The share of profit from jointly controlled entities (KKT and MunayTas) rose by 3.8% YoY but fell 14% QoQ.
(–) Margin deterioration. Gross margin for Q1 stood at 14%, down from 17% a year earlier. Cost of sales increased by 5.8% YoY, partly due to a 10% rise in personnel expenses. Adjusted net income for Q1 2025 was KZT 9.4 billion (or 24 KZT per share), down 13% YoY, partly due to a 39% drop in other operating income YoY. Meanwhile, free cash flow declined sharply to KZT 581 million (down 93% YoY). However, this is an improvement of KZT 2.8 billion compared to Q4 2024, driven by a 49% QoQ reduction in capital expenditures. That said, operating cash flow fell by 25% YoY and 43% QoQ, due to lower operating profit, reduced payables, increased receivables, and income tax payments. As of the end of March 2025, net debt was negative at KZT -9.9 billion, meaning that cash and liquid assets exceeded debt by this amount. However, considering upcoming dividend payments, the adjusted net debt used for valuation purposes is KZT 23.2 billion
Our opinion and valuation model changes. Overall, KazTransOil’s Q1 report can be considered moderately negative. Revenue grew only slightly YoY and declined QoQ amid falling oil transportation volumes. Margins also weakened due to faster growth in cost of sales and administrative expenses. That said, the company still maintains a solid level of net profit, although free cash flow remains low. A significant tariff increase by the MunayTas joint venture could help improve results going forward. In our valuation model, we updated tariffs based on recent company decisions and adjusted net debt after the dividend cut-off. On the other hand, the weighted average cost of capital (WACC) was lowered due to softer government bond yields versus earlier expectations. After all adjustments, we slightly reduced our target price for KazTransOil shares to KZT 1,040, implying 30% upside from the latest market price. Recommendation — “Buy.”