JSC “KEGOC” delivered a neutral set of financial results for the 3rd quarter of 2025. The company posted an expected sharp year-over-year increase in revenue driven by substantial tariff hikes across all major service categories. However, margins declined again due to operating expenses growing faster than revenue. As a result, quarterly net profit and free cash flow decreased compared to last year. Nevertheless, starting October, the company’s tariffs will increase once again, and the freeze on utility price growth will likely halt the rise in technological electricity losses, easing pressure on margins. Still, in our valuation model we maintained a conservative view of this metric. Actual electricity consumption growth also came in slightly below our previous forecast, which led to a reduction in our target price. In light of the price freeze, we also slightly lowered the projected growth of future tariffs. As a result, the target price for one KEGOC share was reduced to 1,790 tenge, implying a 28% upside. Recommendation — “Buy.”
(+) Sustained strong revenue growth. The company’s quarterly revenue for 3Q25 increased by 29% y/y and by 0.7% q/q. The annual growth rate remains high due to sharp tariff increases. Revenue from National Electric Grid (NEG) usage services rose 33% y/y, driven by an 8.4% increase in volumes and a 23% y/y tariff increase. As a result, the share of this largest revenue item rose from 45.8% to 47.7%. The electricity transmission tariff also increased by 23% y/y, but due to a 9.3% y/y decline in volumes (in megawatts), revenue from this category rose by only 12% y/y. For the other two major service categories, tariffs grew by about 10% y/y, while volumes grew by 8% and 14%. These factors drove a 26% y/y increase in revenue from electricity balancing services and a 19% y/y increase in dispatching services. We also note a sharp 40% y/y increase in revenue from the sale of balancing electricity. Overall, quarterly electricity generation volumes in Kazakhstan grew by 3.4% y/y.
(–) Margin compression. The company’s quarterly gross margin declined from 21.7% in 2024 to 19.7% in 2025 due to cost of services rising faster than revenue. Cost of services increased by 33% y/y, mainly driven by higher technological electricity losses (+50% y/y) and expenses for purchasing electricity to compensate for interstate power flows (+136% y/y). The cost of technological losses continues to rise due to noticeably higher market electricity prices. Other large expense items, such as labor costs and depreciation & amortization, also increased by 20% and 12% y/y, respectively. Quarterly EBITDA margin fell from 35.7% in 2024 to 31.6%. Despite strong revenue growth, net profit in tenge terms did not increase due to higher financial expenses. As a result, quarterly net profit decreased by 8% y/y to 10.9 billion tenge, or 39.7 tenge per share. KEGOC’s net margin declined from 16% last year to 11.4%. Quarterly free cash flow fell 22% y/y due to a 17% y/y decline in operating cash flow. On the other hand, quarterly capital expenditures decreased by 16% y/y.
Our opinion and valuation model changes. Overall, we view KEGOC’s financial report as neutral. The company’s revenue has shown the expected strong annual increase following tariff hikes. However, despite this, quarterly margins have once again come in below last year’s levels. Still, the company’s tariffs will rise again in the fourth quarter. At the same time, following the freeze on utility prices in Kazakhstan, electricity prices declined by 2% m/m in October. Together, these two factors will help the company improve its margins by reducing the cost of electricity losses during transmission. As for upcoming dividends, the company will most likely maintain their current level. However, much will depend on fourth-quarter margins, which may improve. In our valuation model, we slightly lowered consumption growth forecasts, as actual results came in somewhat below expectations. We also updated all key financial inputs, including the calculation of technological electricity losses, which continued to increase in the third quarter. In addition, we reduced projected future tariff growth slightly, as the utility price freeze will likely result in lower tariff increases for the company. All these changes led to a decrease in our target price for one share of JSC “KEGOC” to 1,790 tenge, implying a 28% upside. Recommendation – "Buy."