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Current Value Last Week 1m 3m YTD 52 Weeks
Change, %
351.49 -2.61 -4.43 -10.51 -14.39 -18 -19
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Excel data
The Most Influential RENCASIA Constituents
Ticker Company Influence, pts
Leading Movers
CG CN Equity Centerra Gold Inc +16.44
975 HK Equity Mongolian Mining Corp +7.86
KAZ LN Equity Kazakhmys PLC +1.29
STCM LN Equity Steppe Cement Ltd +0.15
Lagging Movers
HSBK LI Equity Halyk Savings Bank of Kazakhstan JSC -0.61
DGO LN Equity Dragon Oil PLC -1.24
KMG LI Equity KazMunaiGas Exploration Production JSC -1.84
KCEL LI Equity KCell JSC -2.66
Index Movers
Composition of RENCASIA
Number Ticker Company Industry MktCap, $mn Weight in Index
1 276 HK Equity Mongolia Energy Corp Ltd 1309 146.37 1.59
2 975 HK Equity Mongolian Mining Corp 1309 339.21 2.69
3 CG CN Equity Centerra Gold Inc   988.13 12.24
4 DGO LN Equity Dragon Oil PLC 1308 4,121.57 22.95
5 EXI LN Equity Exillon Energy PLC   400.26 4.72
6 HSBK LI Equity Halyk Savings Bank of Kazakhstan JSC 1340 2,726.49 11.56
7 KAZ LN Equity Kazakhmys PLC 1315 1,591.30 7.39
8 KCEL LI Equity KCell JSC 1286 2,660.00 12.26
9 KMG LI Equity KazMunaiGas Exploration Production JSC 1308 6,720.15 23.79
10 STCM LN Equity Steppe Cement Ltd 1313 125.19 0.78
Recently Reports
October 17, 2014
Global: Frontier and emerging telecoms - The risk/reward check book
36 Pages
PDF file 937 KB
October 9, 2014
Kazakhstan: Kcell - Concerns overdone – upgrade to BUY
3 Pages
PDF file 393 KB

Kcell stock has recently sold off on corporate governance and currency concerns. We think both are overdone. Majority owner TeliaSonera (not covered) is tackling management issues and will participate in Kcell’s London investor day on 24 October. Further tenge devaluation seems unlikely to us. After losing 22% in 2.5 months the stock offers good value, we think. We upgrade to BUY, from Hold, and roll forward our model to derive a new, YE15 TP of $16.8/GDR.

September 11, 2014
EMEA banks: Sector trends and key calls
0 Pages
PDF file 621 KB
In this EMEA sector note, we focus on key sector/macro trends and our latest in-country bank-specific calls over absolute relative country calls. A genuine struggle for value is the only unifying theme. Our top short-term trading calls are: Overweight (OW) MOEX, Alior, Yapi Kredi and FirstRand; Underweight (UW) VTB, OTP, Akbank and Standard Bank.
August 26, 2014
Kazakhstan: Halyk Bank - Strong 1H14, another EPS and TP upgrade
3 Pages
PDF file 483 KB

Halyk Bank has delivered a strong 1H14, and we have upped our 2014/2015 EPS forecasts for the second time this year. Much of the benefits are asset-quality related, but most underlying trends look robust to us – BUY, TP $13.6/GDR (previously $12.4).

YtD 2014 has been good to Halyk Bank as it has delivered back-to-back strong sets of quarterly numbers. Margins remain robust at 5.6% (Halyk's numbers), and the 1Q14 currency devaluation and sector instability has been good for Halyk’s pricing power and market share/positioning. Asset quality has been the main driver of bottom-line outperformance vs expectations with 1H14 cost of risk at 0.15%, the key drivers of which being write backs from NPLs in Russia and Kazakhstan. Cost growth has also remained in check YtD (4.7% YoY for 1H14) and cost/income is down to 31.2%. RoAE and RoAA for 1H14 were impressive (but unsustainable, we think) at 32.1% and 4.7%, respectively. Credit growth has been muted by NPL removals and subdued 1H demand post the 1Q tenge devaluation.

June 17, 2014
Kazakhstan: Halyk Bank - Strong start to 2014, EPS and TP upgrade
3 Pages
PDF file 410 KB

Just back from Almaty, and following on from a strong set of 1Q14 results, we upgrade our earnings and TP for Halyk Bank: TP $12.4 (prev. $10.3), BUY maintained.

April 11, 2014
Crude Times: A week in Moscow
30 Pages
PDF file 706 KB
• We have spent the last week meeting Russian oil & gas corporates after travelling for almost a month around three continents. Interestingly enough, the "crisis mentality" is stronger inside Russia than when looking at the situation from the outside. There is much more talk and concern over possible sanctions and "crisis scenarios" around future Russia-EU/US relations. However, we have not identified any fundamental issues that could change our positive stance on the sector given its record-low valuations and improving FCF and RoICs profile. The biggest risk we continue to see relates to the slowdown of the domestic economy, which may push the government to keep gas tariffs frozen for more than just a year. This partially explains our recent downgrade of Gazprom from Buy to HOLD, and our relative preference for Novatek, which derives most of its growth from liquids projects. Theoretically, the government may also try to regulate domestic refined product prices by pushing margins down, which may negatively affect downstream heavy oil companies such as Bashneft and Gazprom Neft.
April 4, 2014
Crude Times: More barrels for a metre?
30 Pages
PDF file 1.72 MB
  • Russia produced 10.51Mb/d in March which is the 12th consecutive month of growth (1.3%). This comes at a time when the drilling market is undergoing a structural change with top-line growth materially slowing, while the share of complex horizontal wells is rising rapidly. If Russia can produce more oil with a fewer number of wells this could reduce the capital intensity of the business and boost sector returns which have been on a downward trend recently. Less clear is the question on what this shift in growth and mix of the drilling market means for the service providers. We think the second point is a positive development for the OFS providers, but the market is yet to be convinced.
  • We also note that drilling intensity is a very seasonal indicator with activity slowing down in the winter period artificially boosting the production per metre ratio. As such it is too early to say whether qualitative changes have started to contribute to the efficiency of Russian oil companies. In fact, the longer-term trend has been heading south implying a gradual deterioration of operations.
  • The most worrying trend we are currently observing is the slowdown of production at Rosneft which has also been cutting drilling activity the most among the large oil producers in Russia. Crude output at Rosneft excluding TNK-BP assets dropped -0.7% in March and remained essentially flat YtD (-0.1%). Granted that looking at production at just Rosneft’s legacy assets without taking into account the TNK-BP performance may be partially deceiving as we think Rosneft management is looking at a group portfolio and may prioritise new projects at TNK-BP relative to some marginal legacy projects of ‘old’ Rosneft.
  • Another positive side of Rosneft’s operations is a significant improvement in drilling efficiency at Yugansk which surged to a four-year high at the same time as Lukoil’s efficiency has been gradually declining (see chart). Again, seasonal factors can be quite distorting and we think more time has to pass before a definite answer can be given. For now we see a likely scenario that before companies find the optimal approach to drilling they run the risk of losing certain production.
April 1, 2014
Kazakhstan: Halyk Bank - Upgrading to BUY on share price weakness; clear value but lacking catalysts
3 Pages
PDF file 461 KB

Upgrading to BUY, TP $10.8/GDR; lacking near-term catalysts. While there were few surprises for us in Halyk’s underlying 2013 performance, the share price has been hit severely twice this year: first, after the 16% tenge devaluation in February, and more recently during the Russia-Ukraine conflict in March. That said, fundamentals-wise, little has changed for us in the name and given the 30% implied upside potential to our slightly revised TP of $10.8/GDR, we now rate Halyk BUY (previously Hold, TP $10.3/GDR). That said, we struggle to find natural near-term catalysts for the stock.

Tenge devaluation: Immaterial impact on the business so far. 1Q has been a volatile period in Kazakhstan, first with the currency devaluation, followed swiftly by a retail deposit run at a number of top-10 banks (Kaspi Bank, Bank CenterCredit and Alliance Bank). While it has been a difficult environment for all, on the liability side, Halyk has been a clear beneficiary being the safest bank in town, in our view, as deposit inflows and pricing power are clearly in its favour. In terms of asset quality, the tenge value of FX corporate loans increased (retail lending is in tenge only); however, NPL coverage levels did not change as provisions are built in the lending currency. Overall, management claimed 1Q14 is business as usual at Halyk Bank with no fluctuations in the cost of risk run-rate, and underlying credit demand has held up so far, while pointing out that the devaluation had a positive impact on the profit of the pension fund business in 1Q14.

March 28, 2014
Crude Times: Select observations
30 Pages
PDF file 1.60 MB

We have spent the past three weeks on the road, meeting more than 60 investors across three continents and discussing various topics in the oil industry. As a result, this week's publication of our regular Crude Times product does not follow the standard format. We bring the reader's attention to a number of interesting developments that can be tracked from following the updated data in this report.

March 14, 2014
Crude Times: In crisis mode
30 Pages
PDF file 840 KB

We have spent this week in London, meeting about 20 UK investors. With red screens on most of these days, our conversations were structured accordingly. Surprisingly, we have observed no panic, and have even noted some tentative interest in looking at some of the worst-hit Russian oil names. Whether this means a further correction ahead (using contrarian logic) remains in question.

Surgutneftegas and Lukoil are the two companies that the majority of investors we met see as the best defensive plays in the current environment, with the former trading at the value of its cash holding (and paying over a 10% dividend yield on its preferred shares); and the latter trading on 4x P/E, which is not too far from its valuation level during the 2008-2009 crisis, and offering a 6% dividend yield with a commitment to continue growing this at 15% in the future. We see some short-term risk for Lukoil coming from Iraq, as the political situation there remains highly uncertain, with acts of violence becoming the norm as the country heads into elections. However, with risked capex mostly spent and the overall NPV of the project at c. $0.5bn, we expect little fundamental impact on the company's valuation.

We were also surprised that few investors we met were expecting much downside risk for Gazprom: this could be due to the company trading on 2.2x PE and the share price reaching its lows of 2009. It is somewhat convenient to find bearish arguments for Gazprom related to the Ukraine crisis possibly affecting exports and forcing the company to agree on less favourable gas export terms with its Chinese counterparties later this year. Expanding exports into Europe in the future will be a harder, and possibly more expensive strategy now, in our view, with additional risks coming from the anti-trust investigation and possible fines.

In general, we note that with the possibility of sanctions on Russian oil & gas companies being low and with valuations close to 2009 lows (whether on an absolute or relative basis), we see increased risk premiums as the main driver behind the recent correction. This is in stark contrast with the previous crisis, which was accompanied by a 70% collapse in the oil price, and with most stocks trading at record highs going into that crisis. Strong oil and a weak rouble is a supportive macro environment. The only risks we see for the sector relate to the possibility of a higher fiscal take if the Russian budget weakens as a result of economic recession and/or large-scale financial aid to Crimea. We would also expect more pressure to keep domestic fuel prices relatively low as a way to support the economy. However, we doubt this would erode $60bn of value which has already been lost since the beginning of this year alone.

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