Strong growth of fintech in emerging Kazakhstan
Kazakhstan is the second largest republic in the former Soviet Union, after Russia, and the ninth largest country in the world in terms of territory with an abundance of oil, gas and coal. In addition, the country can also rely on large reserves of gold, copper, zinc and uranium. Kazakhstan is unique compared to other resource-rich countries because it has a very wide range of resources. As many as 99 of the 116 elements from the periodic table can be found there.
Due to its favorable location, the country is also emerging as an important transport and logistics hub in the region, connecting the large and fast-growing markets of China and South Asia with those of Russia and Western Europe by road, rail and a harbor on the Caspian Sea. Kazakhstan is a trading gateway to a market of approximately 150 million consumers in Caspian Sea countries, 50 million in Central Asia and 300 million in Western China. In addition, Kazakhstan has the status of the largest grain producer in Central Asia and is home to the world's first and largest aerospace base.
With a growing middle class, Kazakhstan offers trading and investment prospects for companies and investors looking for new opportunities in this growing, emerging market. For example, the TCM Global Frontier High Dividend fund has positions in the Kazakh fintech company Kaspi and Halyk Savings Bank. Shares are up 8.43% and 24.9% respectively so far this year in euro terms as of March 15, 2021.
On March 3, Kaspi reported excellent results with net profit growth of 43% in 2020, with this growth mainly coming from its digital payments and e-commerce. These two segments are also expected to drive future growth, with the company aiming for 50% growth in consolidated net profit by 2021, which, if achieved, would translate into net profit of nearly a billion US dollars. This growth reflects the dominance and disruption that Kaspi has created in the Kazakh financial services and fintech space. The "Kaspi Super App" has 9.1 million active users, which is half of the Kazakh population. Based on the forecast for net profit for 2021, the stock is still trading with an attractive price / earnings ratio of 14x with a dividend yield of 4.5%.
The other holding company within the fund, Halyk Savings Bank, reported earnings per share on March 12 that was 19.61% better than expected. Halyk is also developing a 'super' app that offers multiple services, including Halyk Invest since November and Halyk Market since December. The company expects to grow from 2.6 to 4 million active users this year. The stock is now trading at only 5.5x the expected profit for 2021 with a dividend yield of 12.5%.