Company Update: Dogus Otomotiv
We already lowered our estimates last month (downward revisions of 15% in unit sales, 27% in EBITDA and 30% in net income) and cut our TP to TL11.0 (from TL14.9). At this stage, we make no further changes and wait for more clarity about the outlook for Turkish market and development of the pandemic
Management update on latest outlook
Dogus Otomotiv held a brief Webex meeting yesterday with the analysts and gave an update on coronavirus impact on their operations. With all automotive plants closed in Europe, the company said their inventory could cover 1 to 3 months of sales without new imports. They didn’t share an updated guidance for unit sales (latest 2020 guidance 70-80K units vs. 61K in 2019), while saying their showroom traffic is down 70% due to social distancing measures. In terms of liquidity, management said stronger than expected 1Q sales and cash generation through working capital would provide them with a strong buffer. The company is also cutting opex and capex in an attempt to keep cash outflow under control. With no debt maturing in April and May and thanks to the roll-overs completed in 1Q, management said that their average cost of debt fell below 14% (vs. 26% in 2019-end).
Vehicle inspection deadlines are also extended by government
Due to the pandemic, government allowed vehicle owners to extend deadlines for mandatory inspections for 3 months. Since every vehicle has its own specific deadline based on registry date, TUVTURK revenues has not much seasonality in a normal year. But with this extension, revenues could now shift towards second half of the year. While a 3-month extension would have limited impact on 2020 results, further extension could pose downside risk to our estimates. DOAS owns 33% stake in TUVTURK which it accounts for using equity pick-up. We expect earnings contribution from TUVTURK to be around TL150mn this year (vs.TL232mn consolidated net income estimate for DOAS).
Keeping our estimates unchanged after initial revisions last month
We already lowered our estimates last month (downward revisions of 15% in unit sales, 27% in EBITDA and 30% in net income) and cut our TP to TL11.0 (from TL14.9). At this stage, we make no further changes and wait for more clarity about the outlook for Turkish market and development of the pandemic. With c.80% contraction assumption during April-June and a gradual recovery in 2H, our current estimate is Turkish market could still finish the year at c.500K level (479K in 2019) but we note that uncertainties are significantly high for both supply and demand outlook.
SERHAT KAYA , RESEARCH, YF Invest