Turkey - BRISA Company Visit Note, 21st February

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Turkey - BRISA Company Visit Note, 21st February

We paid a visit to BRISAs management in their factory which is located in the town of Kocaeli, in order to review BRISAs existing operations and discuss future prospects. BRISA is a tire manufacturing joint venture with the 44% each partnership of Bridgestone Corporation and Sabanci Holding (SAHOL). Remaining 10.16% of the shares traded in BIST with total market cap of TRY2.83bn (US$460mn). The company has two operational plants, one in Kocaeli and the other one in Aksaray. BRISA produces and markets three different tire brands of Bridgestone, Lassa and Dayton. BRISA is the market leader in replacement category with its share of 32%. Michelin, Pirelli, Goodyear (GOODY) are the companys largest competitors in Turkey.




Capacity expansion with a new plant… BRISA built a new factory plant in Aksaray in addition to existing one in Kocaeli. Currently, the Kocaeli plant has the production capacity of 11mn units and Aksaray plant has 2.5mn units per year. However, Aksaray plant is still having its ramp-up period and its production capacity will reach to that amount in November this year. Total capacity utilization in 2019 has been 85% overall, slightly lower than 2018 figures which was 88.8%. BRISAs production has been halted in 2019 mainly due to the maintenance requirement of equipment in the plants.

Improving indebtedness may lead to higher dividends… BRISA spent USD300mn for its brand new plant in Aksaray thus its Net Debt/EBITDA peaked to 6x back in 2016. The company managed to improve its Net Debt/EBITDA to 2.1x in 2019 through generating solid free cash flows in recent years. BRISA generated TRY609mn in 2019 with 15% FCF yield. The company will pay out 21% from its 2019 earnings. BRISAs executives stated that BRISA will be able to distribute more significant amount of dividends in the future, as long as the Net Debt/ EBITDA eases below 2x.

Low capex needs will also support cash flow… BRISA executives declared that in the next three years the company is planning USD40mn of capex for maintenance purposes of factory units and USD10mn for other needs such as generating new point of sales, IT etc. An important note about Aksaray plant is that, although its current capacity is 2.5mn unit per year, with a USD35mn additional investment for capacity expansion, the plant becomes eligible to produce 4.5mn units.

Strong outlook for 2020… After completion of its heavy investments, BRISA will now focus on profitability and operational efficiency in 2020. The company will announce its guidance for 2020 in March; we expect strong outlook and improvement in fundamentals to continue in 2020 especially in terms of sales revenue and expansion in net profit margin by lowering its net debt.
Valuation multiples… BRISA is currently trading at 6.96x EV/EBITDA multiple which is 35% higher than global peer median but it is currently 25% below compared to its historic EV/EBITDA median of 9.20x.