The international rating agency Fitch Ratings has reaffirmed the current credit rating level of JSC "Kcell" (KASE, KCEL) at BB+ with a "Stable" outlook.
According to analysts' reports, the current credit rating of JSC "Kcell" (BB+, Stable outlook) is supported by the company's strong position in the mobile communications market, a relatively low level of debt, and significant strategic ties with its parent company, JSC "Kazakhtelecom."
Analysts note that the active development of 4G infrastructure and the construction of a 5G network lead to increased capital expenditures and a need for capital, which affects the company's debt load. However, the current net debt to EBITDA ratio of 1.4 provides a substantial margin of safety. Considering analysts' expectations for further investment growth in 2025-2027, JSC "Kcell's" debt ratio may increase, but within limits acceptable for the current rating level.
"The confirmation of the current credit rating level of JSC 'Kcell' by the international rating agency Fitch Ratings is viewed as a positive development, as ensuring financial stability is a priority for us. In the third quarter of 2024, with the support of the management of JSC 'Samruk-Kazyna' and the controlling shareholder JSC 'Kazakhtelecom,' we undertook substantial work to improve our credit portfolio. Currently, all of the company’s obligations are expressed in tenge (which eliminates currency risk on liabilities) with minimal interest rates of no more than 15.25%. Our last two bond issues, totaling 45 billion tenge, were placed at a rate of 14.75%, directing the raised funds towards refinancing more expensive borrowings, which has also been positively noted by Fitch Ratings analysts." — emphasized Sabigat Rakhmetov, the Chief Financial Officer of JSC "Kcell."
JSC "Kcell" remains the second-largest mobile operator in Kazakhstan, holding a market share of approximately 30% as of the end of Q3 2024. Significant investments in network modernization, as well as the rollout of the 5G network after acquiring the relevant spectrum in 2022, are expected to support the company's market position.
"At the end of 2022, we, as part of a consortium of mobile operators, won the 5G radio frequency auction and have been actively deploying the 5G network in Kazakhstan for the past two years. This has enabled us to provide nearly a million Kazakhstani citizens with telecommunications services using the new 5G technology. To date, 45% of the population already has access to 5G technology," noted Askar Zhambakin, the Chief Executive Officer and Chairman of the Board of JSC "Kcell."
Additionally, the company is actively modernizing and developing its existing network, as well as constructing 4G base stations to expand and improve network coverage to provide quality services to our clients.
"It is particularly noteworthy to highlight the results of extensive construction in western Kazakhstan, where Kcell's networks have recorded a 20-60% increase in data transfer speeds. We see how our subscribers in Uralsk, Aktobe, and Atyrau are already actively benefiting from improved coverage and increased speeds," — added Askar Zhambakin. — "I would also like to mention that as of the end of the first nine months of 2024, the company's revenue amounted to 180 billion tenge, which is a 9% increase compared to the same period last year. This indicates growth in the customer base, increased sales, and successful marketing strategies."
Fitch Ratings predicts intensified competition following the completion of the sale of JSC "Kazakhtelecom's" stake in LLP "Mobile Telecom-Service," but emphasizes that mobile operators have historically acted independently and expect JSC "Kcell" to benefit from actively offering combined mobile and fixed-line services. Moreover, analysts believe that the mobile segment will become one of the main drivers of growth for the parent company, JSC "Kazakhtelecom."
In conducting a comparative analysis with similar companies, Fitch Ratings points out that "Kcell" has stable positions in the mobile communications market, low debt load, and good cash flow generation beyond the peak of the investment cycle, similar to the Turkish mobile operator Turkcell Iletisim Hizmetleri A.S. (Tcell; BB-/Stable) and the German mobile operator Telefonica Deutschland Holding AG (TEF DE; BBB/Stable). Unlike Tcell, whose rating is limited by the country rating (Turkey), "Kcell" operates in a more stable operating environment and is not exposed to currency risks, according to analysts.
"Additionally, it is worth noting that as of the end of the first nine months of 2024, analysts from the research center Halyk Finance released another report on the shares of JSC 'Kcell' on November 20, 2024, in which they withdrew the previously issued recommendation to 'Sell' our company's shares with a target price of 2234 tenge per ordinary share. Indeed, the current prices of 'Kcell' shares significantly exceed the target level set by analysts. According to trading on KASE the market value of 'Kcell' shares was 3469.9 tenge at the end of the day on November 22, 2024. In Halyk Finance reported that they have put the target price under review and will issue an additional report indicating a new target price after updating the stock valuation model. This, combined with the recent confirmation of JSC 'Kcell's' credit rating by the international rating agency Fitch Ratings, confirms the company's reliability and analysts' confidence in its stable prospects," — added Sabigat Rakhmetov, the Chief Financial Officer of JSC "Kcell."