(=) Record revenue, but slow growth. KazTransOil’s quarterly revenue increased by 1.1% y/y and 3.5% q/q, reaching a record 81.8 billion KZT. Growth occurred across various revenue segments. Revenue from crude oil transportation declined by 2.8% y/y but grew by 6.3% q/q. The decline was due to a 4.6% y/y decrease in quarterly oil transportation volumes. The main reduction occurred in oil transshipment to the CPC system (-23% y/y) and in the main export pipeline Atyrau-Samara (-2.1% y/y). The second-largest revenue segment, "Pipeline operation and maintenance services," grew by 18% y/y and 8.5% q/q. Quarterly revenue from water transportation also increased significantly (+29% y/y) following the completion of the reconstruction of the second line of the Astrakhan-Mangyshlak water pipeline. The share of profit from jointly controlled companies KCP and Munaytas rose by 64% y/y and 9.6% q/q.
(+) Significant margin improvement. Gross margin in the fourth quarter was 13.2%, only slightly below last year's level (13.4%). Annual cost of sales increased by 1.4%, but for the first time in a long time, personnel expenses declined (-1.9% y/y), which previously had been the main driver of expense growth. Adjusted net profit for the fourth quarter of 2024 was 10.3 billion KZT (27 KZT per share), up 139% compared to 2023. However, a significant factor in net profit growth was other operating income of 3.5 billion KZT, mainly due to non-cash revaluation and the reversal of obligations for asset retirement. Despite the improvement, free cash flow remained negative in the fourth quarter at -2.2 billion KZT (versus -20.4 billion KZT a year earlier, when high capital expenditures were made on the Astrakhan-Mangyshlak water pipeline). In the fourth quarter of 2024, capital expenditures again had a negative impact on free cash flow, totaling 28.2 billion KZT (+56% q/q). Net operating cash flows increased by 4.7% y/y and 12% q/q. Net debt at the end of 2024 was negative 3.8 billion KZT, meaning that cash and liquid financial assets exceeded debt levels. However, amid negative free cash flow, net debt increased by 5.7 billion KZT in the fourth quarter.
Our opinion and valuation model changes. Overall, KazTransOil’s financial report can be considered moderately positive. While quarterly revenue reached a record high, its growth was modest both annually and quarterly, showing no clear trend across revenue components. However, EBITDA margin increased significantly compared to the previous year. Additionally, net profit showed strong growth, although partially due to one-time and non-cash other operating income. Despite higher capital expenditures in the fourth quarter, cash and financial assets at year-end reached the highest level for this time point. Given that the company is likely to generate even more cash by the time dividends are paid, it is reasonable to expect at least a repetition of last year's payout ratio. For two consecutive years, the company allocated 76% of net profit to dividends, and maintaining this ratio now seems likely. Therefore, dividends for 2024 could reach 82 KZT per share, marking the highest level in the past four years. The dividend yield in this case would be a solid 10.2% at the current price. In our valuation model, we increased the forecasted inflation rate, leading to higher projected expenses. However, personnel expenses in the fourth quarter were lower than expected. We also updated company’s tariffs based on the company’s latest decisions. We note an improvement in the net cash position of the Kazakhstan-China Pipeline (KCP) joint venture. On the other hand, the weighted average cost of capital (WACC) was increased due to the rise in the National Bank’s base rate. After all these adjustments, we slightly lowered our target price for KazTransOil shares to 1,060 KZT, with a 32% upside potential from the latest market price. Recommendation – "Buy."