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MAVI GIYIM (Ready Wear):  Outperform rating and TL48 target price

Mavi is a growth company with a proven execution plan backed by a strong brand equity. The business has grown…

MAVI GIYIM (Ready Wear):  Outperform rating and TL48 target price

Mavi is a growth company with a proven execution plan backed by a strong brand equity. The business has grown at CAGR of 26% over 2014-18 (with core denim unit sales growing at 13%). We expect topline growth to be 24% in 2019 (as softer unit growth offset by higher price inflation) and see CAGR of 21% through 2022E.

Retailization brings operational efficiency

The company has turned to a retail oriented growth strategy since 2008 and expanded its directly operated retail store space from 80K sqm in 2014 to 150K sqm as of 2018. With close to 80% of domestic sales generated by directly operated store network in Turkey, Mavi has strong control over its retail inventory and pricing, which creates operational advantages and supports profitability. Thanks to these, Mavi has achieved 350 bps EBITDA margin expansion over 2014-2018.

Store upgrades and expanded clothing products range to drive growth

Average retail store size of Mavi is currently ~500 sqm (20% higher than it was in 2015-end). As the company expands clothing products range to include a wide selection of lifestyle products, larger stores with 700-800 sqm is becoming new standard and store upgrades are expected to contribute to sales growth positively. Mavi currently generates 44% of retail revenue from denim products and 56% from lifestyle categories (vs. 10-20% share of denims in a typical fast fashion apparel brand). We think Mavi could close the gap by increasing non-denim sales especially in women categories, which currently has a low share of 37% in total retail sales.

International operations supports resilience of Mavi

Mavi has operations in the US, Canada, Germany and Russia. Sales outside Turkey was $91mn (19% of total sales) in 2018, which we see growing 10% p.a. in USD terms looking forward. The company has a predominantly wholesale oriented int’l business, while we note that Russia is an attractive market where Mavi plans to open directly operated new stores and aims to replicate the success of its retail expansion in Turkey.

Valuation:

Mavi trades at 2019E P/E multiple of 17.4x vs. global apparel retail average multiple of 27.9x. Our TP of TL48.0/share is based on a blended valuation using DCF (60% share) and peer comparison (40% share). At our TP, the stock would trade at 2020E P/E of 15.4x (still much below global peers).

Risks:

(1) Demand planning and inventory management are key operational factors that could lead to lower operating results. (2) The company needs to adopt quickly to the changes in fashion trends such as rising popularity of activewear. (3) Mavi sources a significant part of its denim products from a related party company, but purchases are based on competitive tenders involving 3rd party suppliers, which would address any concern in this area.

 

 

SERHAT KAYA, RESEARCH, Yatirim Finansman

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