Kcell: new capex cycle ahead (downgraded to HOLD)

We have downgraded our rating on Kcell to HOLD (from Buy), but raised our price target (PT) to KZT 1,769/share (from KZT 1,712), implying 1% upside potential. We are closing our Buy call on Kcell as, after the 45% share price rally since our previous report, we see the current valuation as fair. Moreover, we note that the shareholder returns might be harmed, in the short-to-medium-term, by the upcoming capex cycle related to the 5G network rollout. We expect no dividends to be paid until 2025E. On the other hand, we note that the 5G spectrum was distributed between two (Kcell & MTS) of the three operators and, in the long term, these may win market share from Veon due to their superior quality. In order to reflect the 1-3Q22 results and the 5G auction outcome, we have raised our 2023-24E sales forecasts by 6-9%, our EBITDA estimates by 5-8%, and our capex forecasts by 265-42% (inc. the KZT 78bn 5G spectrum payment). On our numbers, Kcell trades at 2023-24E EV/EBITDAs of 3.8-3.1x, on our estimates, at 19-30% discounts vs. its peers.