Kazakhstan Institute of management, Economics and Strategic Research FIN5206 Investment anagement

Prepared by Askar Nurmakhambetov 20121655 Assanov Bekzat 20113076

Spring 2013 1

Acknowledgment With great pleasure we want to express our gratitude to all those who assisted us in writing this Term paper !irst o" all we sincerely want to thank our super#isor and mentor pro"essor $r % %u&ibul 'a(ue "or gi#ing us the #aluable knowledge) his leadership) #aluable ad#ices and hints) guidance helped make the Paper more in"ormati#e We also want to express special thanks to our colleagues) "riends) relati#es "or their regular interest in the progress o" writing the Term Paper) "or their support and encouragement

2*th o" April 2012 %u&ibul 'a(ue Associate Pro"essor +,%-P .ni#ersity /0/) $epartment o" !inance $ear $r 'a(ue We are pleased to presenting this pro&ect that 1ou ha#e conducted We belie#e that we ha#e "ul"illed all the re(uirements that 1ou ha#e indicated to us There were di""iculties) but we o#ercame them with knowledge that we obtained through ,n#estment %anagement 0ourse We expect that the Public and 1ou will worthily e#aluate our pro&ect and presentation

E!ecutive Summar" Should we in#est money in securities2 The decision depends on many "actors3 the a#ailability o" "unds) a willingness to take risks) economic knowledge and experience or the desire to gi#e the money in trust stock market pro"essionals Some people in#est money in securities without making examination on these securities As a result these people lose money Smart in#estors make) on the other hand some analysis) pro#ide some assumptions) predictions in order to compare the intrinsic #alue o" the securities with market #alue The paper pro#ides brie" in"ormation on the background and ob&ecti#e o" the report There is some in"ormation about companies 45S0 +a6akhtelecom and +a6munaiga6 -P7) including its history) operations and business integration which are described in the literature re#iew ,n %ethodology section) some #aluation methods and analysis o" company securities will be discussed !indings and analysis content shows our calculation process o" #aluation common shares and results ,n "inal section o" 0onclusion89ecommendation) according to our comparison o" intrinsic #alue with market #alue) we gi#e recommendation on whether to in#est or not in securities o" the company

#a$%e of &ontents

Acknowledgement;;;;;;;;;;;;;;;;;;;;;;;;;;; 2 <etter o" Transmittal;;;;;;;;;;;;;;;;;;;;;;;;;; 3 -xecuti#e Summary;;;;;;;;;;;;;;;;;;;;;;;;;;;:

I' Introduction(((((((((((((((((((((((((((('6)* a /ackground;;;;;;;;;;;;;;;;;;;;;;;;;; = b >b&ecti#e;;;;;;;;;;;;;;;;;;;;;;;;;;; = c Scope;;;;;;;;;;;;;;;;;;;;;;;;;;; d <imitation;;;;;;;;;;;;;;;;;;;;;;;;;; = =

e Signi"icance o" the issue;;;;;;;;;;;;;;;;;;;;; ? II' +iterature Revie, 5S0 +a6akhtelecom;;;;;;;;;;;;;;;;;;;;;;; ?@A +a6munaiga6 -P;;;;;;;;;;;;;;;;;;;;;;;; ?@A III' ethodo%og"(((((((((((((((((((((((((((''-0)-5

I.' Findings and /na%"sis(((((((((((((((((((((((''-5)2.' &onc%usion and Recommendation((((((((((((((((((('29e"erences;;;;;;;;;;;;;;;;;;;;;;;;;;; 22

I' 0ackground

Introduction

/ased on the a#ailable data and in"ormation o" the companies 5S0 C+a6akhtelecomD and +a6munaiga6 -P) we would like to make some #aluation analysis o" common shares in order to gi#e some guidance to in#estors with their choice o" in#esting or not There are many #aluation methods that exist at the present time Some researchers make analysis based on historical data and in"ormation) and some o" them &ust make critical assumptions and suggestions by not relying on historical data 1$2ective We are going to compare two companies +a6munaiga6 -P and 5S0 +a6akhtelecom by #aluing their common stocks ,n other words) we will be estimating each companyEs intrinsic #alues using $i#idend $iscount model and 0apital Asset Pricing %odel in order to compare them with the market #alues The result o" these intrinsic #alues will decide which o" these two companyEs common shares are most desirable "or in#estors to buy Sco3e The scope o" the pro&ect co#ers mainly estimation o" intrinsic #alues o" common shares o" +a6%unaiFas -P and 5S0 +a6akhtelecom co#ering $i#idend $iscount %odel %oreo#er) our research group "ocuses attention o" the reader on calculation o" re(uired rate o" return and risk "or the companyEs stock through 0apital asset pricing model 40AP%7 in order to assess its attracti#eness "or the in#estor Additionally) the estimation o" 9eturn on -(uity through $uPont analysis will be presented in order to "ind the expected growth rate All necessary data "or

assessing stocks o" +a6%unaiFas -P and 5S0 +a6akhtelecom is retrie#ed "rom "inancial reports placed on o""icial website o" the companies) +a6akhstan Stock -xchange and in#est"unds k6 ,n"ormation "or 0apital asset pricing model 40AP%7 and estimation o" such #ariables as beta and market return and "igure o" risk "ree rate was obtained "rom bcc@in#est k6) +AS- website +imitation =

Past per"ormance is not necessarily indicati#e o" "uture results The #alue o" in#estments may "all as well as rise and the in#estor may not get back the amount initially in#ested Some in#estments may not be readily reali6able because the market in the securities is illi(uid or there is no secondary market "or the in#estorEs interest and there"ore #aluing the in#estment according to historic prices and assumptions is di""icult to (uanti"y Galuation o"
common stock is #ery complex process The stock re(uires a deeper analysis compared to pre"erred stock or debts and without making some assumptions or predictions) the estimating the intrinsic #alue

"or the common shares is arduous in comparison with other securities !rom this "act) our assessing o" the security will be based on the assumption concerning the excepted growth rate o" di#idends Significance of the issue ,n#estments in securities H has long been a common practice throughout the world ,t is a process (uite di#erse and gi#es in#estors a great opportunity ,t all depends on the huge number o" types o" securities) as well as on large number o" operations that can be done with them There"ore in#estment in securities H is a speci"ic type o" earnings) which with proper treatment can be #ery pro"itable and promising II' +iterature Revie,

5S0 C+a6akhtelecomD which was "ounded in 1AA: o" 1 st december) is the largest telecommunication company in +a6akhstan pro#iding a wide range o" in"ormation ser#ices The company is the countryIs national telecommunications operator and is licensed to engage in the telecommunications business in the republic with the exclusi#e right to the international and long distance communication ser#ices As a natural monopoly that owns all the networks and data centers o" communication in the country) the 0ompany entered into the State 9egister o" Jatural %onopolies o" the 9epublic o" +a6akhstan 5S0 C+a6akhtelecomD implements a number o" ma&or in"rastructure pro&ects) engages in moderni6ation and digitali6ation o" telecommunications networks) and introduces new ?

technologies and #illages o" telephones) as well as takes part in de#elopment o" broadband ,nternet access Additionally +a6akhtelecom pro#ides exposure to all segments o" +a6akhstanEs "ixed@ line telecom market H local and <$ #oice) broadband) and pay@TG H as well as to the mobile market through its wholly owned subsidiary Alltel) and its :AK stake in FS% +a6akhstan Strategy: The largest regional integrated operator on in"o communication market that creates the cost "or its shareholders on +a6akhstani market and abroad by means o"3 17 Strengthening and "ormation o" leading positions in all main segments o" in"o communication market o" 9epublic o" +a6akhstanL 27 Product expandingL 37 -xtension o" business geography and taking leading positions on telecommunication markets o" countries presenceL :7 ,ntroduction o" newest world technologies in the sphere o" in"o communications and business H processes as a security o" uninterrupted growth and leadershipL B7 Placing and holding leading positions on 9+ telecommunication market) satis"ying all 0ompanyEs clients group needs in telecom ser#icesL =7 .sing extra cost) created by the group "or its a""iliated companies) especially in acti#ity e""icacy raise and impro#ement o" corporate managementL ?7 Turning to indispensable and ordinary part o" li"e o" each person) changing) surprising and surpassing all expectations $irect contribution to achie#ement o" strategy o" the 0ompany will be made by strategic trends o" de#elopment) strengthening and "ormation o" leading positions on key 9+ in"o communication markets) supported and agreed by reali6ation o" synergy potential o" these markets3 1. strengthening on mobile market; *

2. develo ment on !i"ed tele hon# market; 3. holding leading ositions on $ontent and atta$hments market; %. develo ment on $or orate in!o $ommuni$ation servi$es market; 5. strengthening on &holesale tele$ommuni$ation market. +a6%unaiFa6 -xploration Production 5S0 is a subsidiary o" Jational 0ompany +a6%unayFas) which belongs to Jational Wealth !und MSamruk@+a6ynaN +%F -P was "ounded in %arch 200: by the merger o" two hitherto &oint stock companies) .6enmunaigas and -mbamunaigas 5S0 C-P C+a6%unaiFa6D is a leading company in the "ield o" hydrocarbon exploration and production in +a6akhstan) and among the leaders o" the oil and gas sector in the 0aspian region The main acti#ities o" oil and gas properties carried out in the 0aspian and %angistau basins o" western +a6akhstan 5S0 +%F -P has production branches .6en%unaigas and -mba%unaigas) also +a6germunai <<P) 0,T,0 0anada -nergy <imited 4holds A:K in 5S0 +ara6hanbas%unai7 and +%F P+, !inance /G 4holds 33K in Petro+a6akhstan ,nc 7 The company is de#eloping :1 oil and gas "ields .6en%unaigas de#elops two ma&or "ields) -mba%unaigas @ a group o" 3A "ields ,n addition) the 0ompany owns shares in associated companies engaged in production oil and natural gas +%F -P is one o" the top three oil

producers in +a6akhstan The production #olume o" the 0ompany) including shares in companies <<P O5GO +a6germunai) 00-< 4 +ara6hanbas%unai7 and Petro+a6akhstan) in 2012 was 12 2 million tons 42:? thousand barrels per day7 +%F -P mission is e""ecti#e exploitation o" hydrocarbons in order to maximi6e the bene"its to shareholders) whilst pro#iding long@term economic and social bene"its "or the regions o" our operations The main ob&ecti#e o" +%F -P is the increase in shareholder #alue +%F -P seeks to achie#e #alue growth through growing reser#es and production o" hydrocarbons) impro#ing pro"itability o" existing assets) and de#eloping new business opportunities III' &a3ita% /sset 4ricing ode% A ethodo%og"

>ne o" the main problems that can be encountered when assessing the #alue o" the assets is to determine the relationship between risk and return The market pattern Othe higher the risk) the higher the rate o" returnO is not in doubt ,n this case) each in#estor "orms its own "orecasts o" relati#ely marked parameters 'owe#er) the market tends to keep mo#ing in the direction o" a certain e(uilibrium #aluations o" risk and return on assets ,n a well@de#eloped market) new in"ormation is (uickly re"lected in the market #alue o" assets) so "or these conditions) there is a model that would ade(uately describe the relationship between risk and return o" assets Such a model is de#eloped in the mid =0s by William Sharpe and 5ohn <intern and was named the #aluation o" "inancial assets 4capital asset pricing model @ 0AP%7 4/essono#a) 200?7 0apital Asset Pricing %odel 40AP%7 H a model "or the economic e#aluation o" shares) securities) deri#ati#es and 8 or assets by relating risk and expected return 0AP% is based on the idea that in#estors demand additional expected return 4risk premium7 i" they are asked to take on additional risk 4/essono#a) 200?7 ,n 1AA0) William Sharpe won the Jobel Pri6e in the realm o" economics "or his contributions to the theory o" pricing "inancial assets) that is so@called the 0apital Asset Pricing %odel 40AP%7 This is a single@"actor model) the key "actor is a risk The main result o" 0AP% is the establishment o" the relationship between return and risk o" the asset "or the e(uilibrium o" the market >ne o" the most important things is the "act that in the making choice) the in#estor must take into account not the entire risk o" the security) but the only systematic or non@di#ersi"iable This part o" the risk o" an asset is closely linked to the o#erall market and (uantitati#ely represented by coe""icient beta which was introduced by William Sharpe in his one@"actor model 4/essono#a) 200?7 0AP% can be determined in the "ollowing way3
(' ( ! (i = ( ! + i' 2 '

417

10

Where (i =expected return on e(uilibrium o" the securityL (' H return on the marketL
2 ' H the #ariance o" the market or its riskL

( ! H risk "ree rateL i' H the co#ariance between

the return o" "inancial asset and return o" the market Particular attention should be paid to P coe""icient model) which characteri6es the sensiti#ity o" the asset to market changes The coe""icient P o" 0AP% is the ratio o"3

i' 2 '

This ratio is used to measure the market risk and the relationship between the return o" the "inancial asset and the return o" the asset market We can rewrite the "ormula 417 by the "ollowing way3
(i = ( ! + 4 ( ' ( ! 7

427

'ence) it clear that the 0AP% is based on "ollowing key #ariables3 9" @the risk@"ree rate o" an in#estment 9m @ the o#erall stock market risk P @ the stockIs beta The capital asset pricing model 0AP% @ is single@"actor model ,t is (uite widespread /ut like any other models) it has both ad#antages and disad#antages The main ad#antage is that this model clearly describes the relationship between return and risk As well as its main drawback is that it is one "actor and) there"ore) cannot take into account all the "actors a""ecting the return )Sharpe* Alexander* /ailey) 200*7 5ividend 5iscount ode% 655 7

A lot o" stock exchanges allow in#estors to in#est in se#eral securities including stocks To "ind necessary in"ormation about stock) in#estors employ di""erent types o" in#estment analyses including "undamental analysis %any methods "or calculating the intrinsic #alue o" a stock is used ,n#estors "re(uently apply the di#idend discount model to estimate the intrinsic #alue o" a stock /ased on this model) they buy) hold or sell the stock 4F>TTWA<$) 20127 11

The di#idend discount model pro#ides a method o" elaborating an explicit expected return "or the stock market ,t is a means o" assessing based on theory that a stock is e(ual to the discounted sum o" all its "uture di#idend payments ,n other words) the intrinsic #alue o" a stock is determined similar to the present #alue o" "uture di#idends The stocks are #alued based on the net present #alue o" the "uture di#idends The predicting o" "uture di#idends is sometimes rather problematic 4F>TTWA<$) 20127 Se#eral methods o" the di#idend discount model are employed by the "inancial analytics The easiest method is that the #alue o" a stock e(uals to the #alue "or a perpetual annuity with a constant le#el o" payments P0 Q $i#1 8 4k H g7 >ther methods are based on increasing) stagnation or decreasing o" di#idends The increasing or decreasing o" di#idends can be in two ways3 linear or nonlinear !inancial analytics usually consider possible increase rate o" di#idends with the aid o" "inancial statements o" companies or historical in"ormation analysis ,n order to examine historical data) we should disco#er the existence o" such data The possible growth rate o" di#idends relies on "actors like di#idend policy) pro"it margin) return on e(uity and indebtedness 4F>TTWA<$) 20127 According to /lackwell) Fri""iths and Winters 4200?7) stocks are di#ided by stocks that pay di#idends and stocks that do not pay di#idends An in#estor who chooses the stock which gi#es di#idend looks "orward to take part in two sets o" "uture cash "lows3 a stream o" "uture di#idends and a sales price when the stock is sold /y assessing a di#idend paying stock) we should make some hypothesis about di#idend growth3 no growth in di#idends) constant growth in di#idends or non@constant growth in di#idends 'owe#er) the hypothesis about no growth in di#idends could appear insubstantial The speculation o" constant di#idends is appropriate "or the peculiarities o" pre"erred stock) which contains a stated di#idend o" a "ixed amount All pre"erred stock di#idends ha#e to be "ully disbursed be"ore any di#idend on common stock can be disbursed Supposition o" constant 12

growth in di#idends is acceptable "or the big) stable) di#idend@paying companies) which are usually named as Cblue chipD "irms A more general kind o" assumption is the non@constant growth in di#idends which says that di#idends are supposed to go down to a rate o" growth that is sustainable o#er the long run There are o"ten three@stage) "our@stage non@constant growth models in di#idends are employed in practice 4F>TTWA<$) 20127 The price o" a share o" stock is the present #alue o" all expected "uture di#idends per share discounted at market capitali6ation rate3

+, Q #alue o" common stock &L -t Q di#idend during period tL k Q re(uired rate o" return o" stock , or cost o" e(uityL t Q the holding period The model was initially de#eloped by Williams 41A3*7 and a"terwards expanded by Fordon 41A=37 4/realey R%yers 420003 =:@==7 7 ,n order to apply the abo#e e(uation) an in#estor has to predict all "uture di#idends And additionally speci"ic assumptions ha#e to be made) these assumptions are based on di#idend growth rates Thus) the di#idend per share at any time t can be expressed as the di#idend per share at time t@1 times the growth rate o" gt 4Sharpe) 1AAA73 $t Q $t@1 S 41 T gt7 We made the #aluation o" common stock based on CTwo@stage $i#idend $iscount %odelD The model consists o" two stages o" growthL an expected growth rate that lasts CtD years and a steady state growth rate that lasts in"initely3

Where . Q the intrinsic #alue o" common stockL $0 Q $i#idends per share at year 2012L 13

g Q expected growth rate that lasts t yearsL r Q cost o" e(uity PJ Q Price or Terminal #alue at the end o" year J According to our assumption) the expected growth rate which we are going to estimate by "ormula g / (eturn on e0uit# 1 (etention (atio* will last "or the next "i#e years and a"ter "i#e years it will be e(ual to F$P growth rate o" +a6akhstan which are BK until eternity 420127 4BK F$P growth rate is taken "rom the o""icial website7 0ost o" e(uity will be estimated according to the 0apital Asset Pricing %odel3
(i = ( ! + 4 ( ' ( ! 7 )

in this e(uation risk "ree rate will be taken "rom +a6akhstan o""icial

website which is called bbc@in#est k6 that e(uals to the B BKL we will calculate the market return based on +AS- ,J$-U o" monthly data starting "rom 200* till 2012) as both +a6%unaiFas -P and 5S0 +a6akhtelecom are listed in this indexL the will be estimated based on the historical stock prices o" two companies also re"erring to the monthly data !rom historical prices we will obtain annual returns and use "ormula "or "inding the 3 2 / 3ovarian$e )453 6azakhtele$om* 6A57 8N-79: ; +arian$e )6A57 8N-79: 2 / 3ovarian$e )6az'unai<as 7.* 6A57 8N-79: ; +arian$e )6A57 8N-79:. As mentioned abo#e) the "ormula "or calculating the expected growth rate that we are going to use3 g / (eturn on e0uit# 1 (etention (atio !or estimating 9eturn on e(uity we will employ $uPont analysis and !inancial Statement o" the two companies "or 20123 (=7 / .ro!it 'argin ).ro!it;5ales: 1 >otal Asset >urnover )5ales;Assets: 1 70uit# 'ulti lier )Assets;70uit#: 9etention ratio will be estimated by the "ollowing "ormula3 (etention (atio / )1 ? -.5 !or 2012;7.5 )or Net 8n$ome: !or 2012: / )1 ? .a#=ut ratio:

1:

A"ter that we will compute the present #alue o" all expected "uture di#idends per share discounted at the cost o" e(uity The terminal #alue will be computed a"ter "i#e years by this "ormula3 PJ Q -xpected di#idends per share at end o" year J840ost o" e(uity H F$P steady state growth rate7 I.' 8S& Kazakhte%ecom 9iven information from financia% statement of the com3anies Dividends per share KZT, 2012 Earnings per share KZT, 2012 Payout ratio KZT, 2012 Retention ratio 634,08 19972,96 0,0317 0,97 Findings and /na%"sis

Asset turnover KZT 2012 "ro#it $argin KZT 2012 (inan)ia' *everage 2012 Return on Equity

0,406 0,118 1,+1+ 0,073

!TA %&! a'es TA!TE

So expected growth rate is 7,0+, - (eturn on e0uit# 1 (etention (atio The calculation o" cost o" e(uity using 0apital Asset Pricing %odel3
KAZtelecom Closing price, KZT 14124 13300 12900 13100 12900,01 INDEX KASE Closing price, KZT 969,7 940,36 989,78 976,09 926,89 KAZtelecom Return % 0,743 0,372 .0,183 0,186 .0,404 INDEX KASE Return % 0,374 .0,+99 0,168 0,637 .0,417

Years December 2012 November 2012 October 2012 September 2012 August 2012

1B

July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 200

13349 13+01 14+00 30498 2+200 2+090 21+00 20116 17+00 17600 1832+ 17000 198+0 19++0 1940+ 19700 19900 19+00 19600 18800 17200 1+699,99 1+401 14300 14+00 141++,++ 11800 1+600 16800 17+30 18800 17300 187+0 21+00 1++00 1+400 1320+ 13400,01 13201 13200 8000 7+00 7000 13637

960,3 980,+2 1011,+ 122+,67 1261,09 12+3,36 1199,+6 110+,+8 1097,+6 1181,11 1140,3 1249,16 1+26,16 1++9,77 1628,17 1714,42 1737,9+ 181+,83 1790,97 1718,09 1600,+ 1+21,6 1+2+,29 1408,43 1467,84 1407,99 14+7,44 1804,7 1886,11 1747,64 1838,82 1768,26 1837,76 1681,2 1+12,84 1394,47 1191,74 1069,77 11+7,26 899,98 683,64 626,84 622,27 903,++ st.deviation var

.0,13+ .0,827 .6,29+ 2,+23 0,0+3 2,004 0,826 1,794 .0,068 .0,47+ 0,93+ .1,723 0,184 0,090 .0,180 .0,121 0,246 .0,061 0,+11 1,116 1,147 0,233 0,924 .0,166 0,292 2,39+ .2,923 .0,8+7 .0,+00 .0,811 1,040 .0,928 .1,+3+ 4,64+ 0,078 1,99+ .0,17+ 0,181 0,001 7,800 0,800 0,8+7 .+,840 2,060 4,2+

.0,247 .0,368 .2,097 .0,337 0,074 0,+38 1,020 0,088 .0,849 0,429 .1,046 .2,178 .0,2+9 .0,+04 .0,604 .0,162 .0,+1+ 0,167 0,+09 0,882 0,622 .0,029 0,996 .0,486 0,+10 .0,407 .2,309 .0,+18 0,9+1 .0,+9+ 0,479 .0,4+4 1,117 1,33+ 1,019 2,041 1,368 .0,907 3,430 3,797 1,087 0,088 .3,736 1,268 1,608

1=

covar Calculation of Mar et Return Return Closing price Years % 29!12!1 2 969,7 0,374 "0!11!1 2 940,36 .0,+99 "1!10!1 2 989,78 0,168 2 !09!1 2 976,09 0,637 "1!0 !1 2 926,89 .0,417 "1!0#!1 2 960,3 .0,247 29!0$!1 2 980,+2 .0,368 "1!0%!1 2 1011,+ .2,097 2 !0&!1 2 122+,67 .0,337 "0!0"!1 2 1261,09 0,074 29!02!1 2 12+3,36 0,+38 "1!01!1 2 1199,+6 1,020 "0!12!1 1 110+,+8 0,088 "0!11!1 1 1097,+6 .0,849 "1!10!1 1 1181,11 0,429 "0!09!1 1 1140,3 .1,046 "1!0 !1 1 1249,16 .2,178 29!0#!1 1 1+26,16 .0,2+9 "0!0$!1 1 1++9,77 .0,+04 "1!0%!1 1 1628,17 .0,604 29!0&!1 1 1714,42 .0,162 "1!0"!1 1 1737,9+ .0,+1+ 2 !02!1 1 181+,83 0,167 "1!01!1 1 1790,97 0,+09 "1!12!1 0 1718,09 0,882 "0!11!1 0 1600,+ 0,622 29!10!1 0 1+21,6 .0,029

1,826

2 / 3ovarian$e )453 6azakhtele$om* 6A57 8N-79: ; +arian$e )6A57 8N-79: / 1,13+

1?

"0!09!1 0 "1!0 !1 0 "0!0#!1 0 "0!0$!1 0 "1!0%!1 0 "0!0&!1 0 "1!0"!1 0 2$!02!1 0 29!01!1 0 "1!12!0 9 "0!11!0 9 "0!10!0 9 "0!09!0 9 2 !0 !0 9 "1!0#!0 9 "0!0$!0 9 29!0%!0 9 "0!0&!0 9 "1!0"!0 9 2#!02!0 9 "0!01!0 9 "1!12!0

1+2+,29 1408,43 1467,84 1407,99 14+7,44 1804,7 1886,11 1747,64 1838,82 1768,26 1837,76 1681,2 1+12,84 1394,47 1191,74 1069,77 11+7,26 899,98 683,64 626,84 622,27 903,++ return on mar et

0,996 .0,486 0,+10 .0,407 .2,309 .0,+18 0,9+1 .0,+9+ 0,479 .0,4+4 1,117 1,33+ 1,019 2,041 1,368 .0,907 3,430 3,797 1,087 0,088 .3,736

0,086

9isk@"ree rate is e(ual to the B BK 4in +a6akhstan o""icial website7 So 0ost o" -(uity Q B BK T 1,13+/0816, 2 +1+,3 -8,97,

1*

-xpected $i#idend per share3 +a6akhtelecom 5S0 '(pecte) )ivi)en)s* +,678,783 726,637 777,86+ 832,704 891,410 93+,980 .resent value* +,622,92 611,96 601,18 +90,60 +80,21 1+3+3,+7

1 2 3 4 + 6

7,0+, 7,0+, 7,0+, 7,0+, 7,0+, 0,0+0

0alculating the Terminal Galue3 *A1):10 S 41 T 0 0B07 Q A3B)A*0 A3B)A*0 8 4* A?K H BK7 Q 23B**)=:102 Present #alue at year = Q 23B**)=:102841T0 0*A?7VB Q 1B3B3)B? So the intrinsic #alue o" the common share is the Sum o" all Present #alues3 + / 622,92 4 611,96 4 601,18 4 +90,60 4 +80,21 4 1+3+3,+7 - 18360, Kaz unaigaz E4 9iven information from financia% statement of the com3anies Dividends per share KZT, 2012 Earnings per share KZT, 2012 Payout ratio KZT, 2012 Retention ratio 6+6 2480 0,264+16129 0,73+483871 Asset turnover KZT 2012 "ro#it $argin KZT 2012 (inan)ia' *everage 2012 Return on Equity 0,+10 0,202 1,169 0,120 1A 8

Expected growth rate

0)0**:

The calculation o" cost o" e(uity using 0apital Asset Pricing %odel3

Years December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010

Ka!Munai"a! Closing price, KZT 16009,99 1+608 17000 162+0 14907 16100 1+22+ 16402 18087 17800 1++00 14200 13+00 13890 1+100 13++1,4 14800 16+00 17800 18701 193+0 194+0 20200 191+0 17700 17001 1+400 1+82+ 1+900 176+0 16+00 18100 22000 21701,01

INDEX KASE Closing price, KZT 969,7 940,36 989,78 976,09 926,89 960,3 980,+2 1011,+ 122+,67 1261,09 12+3,36 1199,+6 110+,+8 1097,+6 1181,11 1140,3 1249,16 1+26,16 1++9,77 1628,17 1714,42 1737,9+ 181+,83 1790,97 1718,09 1600,+ 1+21,6 1+2+,29 1408,43 1467,84 1407,99 14+7,44 1804,7 1886,11 stan)! )eviat variance covar !eta

Ka!Munai"a! Return % 0,309 .0,983 0,++4 1,081 .0,889 0,690 .0,861 .1,118 0,193 1,781 1,099 0,622 .0,337 .0,962 1,371 .1,012 .1,236 .0,876 .0,+78 .0,402 .0,062 .0,446 0,6+8 0,983 0,493 1,248 .0,322 .0,0+7 .1,190 0,836 .1,061 .2,127 0,16+ #,$%$ #,&(% #,*& 0,872

INDEX KASE Return % 0,374 .0,60 0,168 0,637 .0,417 .0,247 .0,368 .2,097 .0,337 0,074 0,+38 1,020 0,088 .0,849 0,429 .1,046 .2,178 .0,2+9 .0,+04 .0,604 .0,162 .0,+1+ 0,167 0,+09 0,882 0,622 .0,029 0,996 .0,486 0,+10 .0,407 .2,309 .0,+18 #,&'$ #,()

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ris/ 0ree rate cost o" ca#ita$

+,+0, 8,202%

9eturn on %arket3 * =K 2 / 3ovarian$e )6az'unai<as 7.* 6A57 8N-79: ; +arian$e )6A57 8N-79 / 0,872 0ost o" -(uity Q B BK T 0 *?2S4* =K H B BK7 Q 8,202% -xpected $i#idend per share3 +a6munaiga6 -P '(pecte) )ivi)en)s* .resent +,value 714,002097+ 6+9,8761+4 777,1326148 663,77+212 84+,84499+4 667,697308 920,63277+8 671,642+79 1002,03313 67+,611162 10+2,134786 221+1,6031

1 2 3 4 + 6

8,84, 8,84, 8,84, 8,84, 8,84, +,

0alculating the Terminal Galue3 1002)03313S 41 T 0 0B07 Q 10B2)13:?*= 10B2)13:?*=8 4* 202K H BK7 Q 32*B:)1=::2 Present #alue at year = Q 32*B:)1=::2841T0 0*2027VB Q 221B1)=031 So the intrinsic #alue o" the common share is the Sum o" all Present #alues3 + / =BA)*?=1B: T ==3)??B212 T ==?)=A?30*T =?1)=:2B?AT =?B)=111=2T 221B1)=031 Q 25490,20552 .' Summar":&onc%usion: Recommendations

To sum up) we are going to compare their intrinsic #alues that we ha#e already calculated 8S& Kazakhte%ecom ; 18360,4448KZT The market price which is a#ailable "rom in#est"unds k6 "or $ecember 30) 2012 o" 8S& Kazakhte%ecom is ; 13500KZT So as we see the intrinsic #alue is higher than market #alue We recommend "or the in#estors that they need to buy and hold common shares o" 8S& Kazakhte%ecom 21

Ka !"#a$ga E% & 25490,20552KZT The market price which is a#ailable "rom in#est"unds k6 "or $ecember 30) 2012 o" Ka !"#a$ga E% & 16000KZT So also as we see the intrinsic #alue is higher than market #alue We recommend "or the in#estors that they need to buy and hold common shares o" Ka !"#a$ga E%

'e(ere#ce)

Fottwald) 9 420127 >@7 A57 =B >@7 -8+8-7N- -853=AN> '=-7C >= '7A5A(7 5>=36 .(837 +=CA>8C8>D. 5ournal o" interdisciplinary research /essono#a > S A57 =B 3A.8>AC A557> .(838N< '=-7C )3A.': B=( 79.73>7- (7>A(N B=(73A5>8N< =N 79A'.C7 =B >7C73=''AN83A>8=N 3='.AN875E 5>=365 http388www kmgep k6 http388in#est"unds k68 http388www kase k6 22

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