Turkish auto stocks: Revising up estimates across the board
Outlook for Turkey auto sales is improving on the back of easing cycle of CBRT (1000 bps rate cut since July), more stable currency in recent months and pent-up demand in the market
Excerpt of an equity research report
Domestic demand recovery gaining pace
Outlook for Turkey auto sales is improving on the back of easing cycle of CBRT (1000 bps rate cut since July), more stable currency in recent months and pent-up demand in the market. After registering sales of close to 1 million units during 2015-2017, the market fell sharply in 2018 to the level of 621K (-35%) and its run-rate has bottomed out at around 350K levels by mid-2019. With the recovery seen in September/October, we expect total sales to recover to 460K in 2019 and 550K in 2020E.
TOASO: Maintaining Outperform and revising up TP to TL30.0
We revise our TP for TOASO from TL23.6 to TL30.0 share, which points to 30% upside potential. We increase our EBITDA estimates by 7% in 2019 and 5% in 2020 thanks to improvement in domestic demand and limited impact of weak export deliveries on earnings thanks to take-or-pay guarantees. The market is awaiting details of next generation Doblo contract with Fiat and we believe risks about product renewals are priced in as TOASO is trading at 36% discount to FROTO (2020 EV/EBITDA of 4.6x). We expect this discount to narrow as planned merger between Fiat-PSA could expand new investment opportunities and support prospects for higher capacity utilization in the long term (~60% currently) with potential synergies with PSA brands (Peugeot, Citroen, Opel)
FROTO: Maintaining Marketperform and revising up TP to TL74.4
We increase our TP for FROTO from TL61.8 to TL74.4 per share, which indicates upside potential of 11%. FROTO registered 7% CAGR in export volumes since 2012 thanks to market share gains in Europe. Next leg of the growth cycle would be planned collaboration between Ford-VW, which envisages developing new generations of Ford Custom/VW Transporter on the same platform. As these models are likely to be built in Turkey by FROTO, long term growth potential remains intact. However, trading at 7.2x EV/EBITDA in 2020E, the shares are close to our fair value estimate and we keep our neutral view on FROTO.
DOAS: Maintaining Outperform and revising up TP to TL10.90
We increase our TP for DOAS from TL9.40 to TL10.90 mainly on the back of lower TL risk-free rate in our DCF (from 16% to 15%) and slightly higher sales volume estimates (+9% revision in 2019E to 60K units and +7% revision in 2020E to 75K units). We continue to expect to DOAS to benefit from lower interest rates and higher income from subsidiaries, resulting in attractive P/E multiples of 7.6x in 2020E and 4.5x in 2021E.
OTKAR: Upgrading to Outperform and revising up TP to TL173.1
We increase our TP for OTKAR from TL130.0 to TL173.1 per share as we change our valuation from DCF to a multiple based valuation. We increase our 2019/2020 net income estimates by 14% and 23% thanks to better than expected EBITDA margin performance. We are now penciling in 17% EBITDA margin for both 2019 and 2020 up from 15% previously. This puts 2020 P/E multiple at 8.2x, which remains attractive as we believe the company has further room for growth with potential new projects.
By SERHAT KAYA, RESEARCH analyst, YF Brokerage