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Ulker Biskuvi – 3Q18 Earnings Update

Target Price 23.45 TL Robust top-line contribution from relatively higher margin international operations and net fx gain supported the results…

Ulker Biskuvi – 3Q18 Earnings Update

Target Price 23.45 TL

Robust top-line contribution from relatively higher margin international operations and net fx gain supported the results

 3Q18 Revenue TL1,463mn (+38% y/y according to restated 3Q17 figures, pure confectionery +37% y/y), EBITDA TL235mn (+38% y/y) and net income of TL222mn (+161% y/y). Revenues, EBITDA and net income beat consensus by 4%, 11% and 47%, respectively with consolidated EBITDA margin of 16.1% versus consensus figure of 15.0%. Apart from better operational performance mainly backed by international operations EBITDA margin of 20.9% versus Turkey’s 13.1%, net foreign exchange gain of TL155mn versus 3Q17’s restated figure of TL2mn supported the bottom-line. Consolidated volume growth was 5% but price increases and weak TL (for international operations’ contribution) were supportive for the top-line which expanded by 38%. As per 3Q18 financials, Turkey and international operations’ revenue growths were 20% and 79%. We calculate that Turkey operations’ share in 3Q18 consolidated revenue and EBITDA were 61% and 51%, significantly below 3Q17’s respective 70% and 65%. Financials are likely to support stock performance.

Domestic chocolate performance remained strong

Turkey volumes increased by 2% (CH +11%, B-2%, C -4%). With an average price increase of 18% (CH+12%, B+18%, C+23%), 3Q18 Turkey top-line growth materialised at 20%. Chocolate, biscuits and cake segments’ revenue growths were 24%, 16% and 18%, respectively and relatively higher value added chocolate share in total revenues increased to 53% compared to 3Q17’s 51%. Despite price increases and mix impact, higher costs brought about gross and EBITDA margins of 19.3% and 13.1% down by c200bps and 140bps y/y, respectively.

International operations’ 3Q18 highlights

Confectionery volume was up by 12% y/y (CH +9%, B+15%, C -14%) and confectionery revenue growth became 78%, supported by respective price increases of 66%,56% and 52% in chocolate, biscuit and cake segments. Biscuit share in confectionery revenues was mildly up to 65.2% from 65.2%. Weak TL, branded products focus, effective pricing strategy, economies of scale through Mc Vitie’s, price positioning of McVitie’s products and increase of Ulker star brands should have supported the results. International operations gross margin and EBITDA margins were strong at 42.0% (+300bps y/y) and 20.9% (+120bps), respectively on restated figures. When we compare previously reported 3Q17 financials with restated 3Q17, restated int’l revenues became TL315mn vs TL266mn and restated int’l EBITDA became TL62mn vs TL26mn and restated EBITDA margin jumped to 19.7% from 9.7%.

Consolidated restated 3Q18 EBITDA margin was 16.1% almost flattish y/y

Consolidated gross margin improved by 145bps y/y to 28.1% attributable to aforementioned strength abroad. With higher consolidated opex/sales of 14.6% versus 3Q17’s 13.4%, consolidated EBITDA margin materialised at 16.1% compared to 3Q17’s 16%.

Higher net debt

As of end-3Q18, Ulker’s net debt materialized at TL1.68bn which is above end-2017’s TL1.3bn implying net debt /EBITDA of 1.9x similar to end-1H18 multiple.

 

Oyak Securities / Research

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