Ford Otosan - Exports Still Driving Growth
After a pause in 2016 following Ford Europe's decision to curb inventory levels to evaluate the post-Brexit environment, Ford Otosan's exports staged an impressive recovery in 1H17. Strong demand in export markets has not only prompted the management to upgrade its 2017 export guidance twice already this year, but also motivated it to make a $52 mln investment to expand annual production capacity at its Golcuk plant by 40,000 units, to 330,000 units. We have incorporated the stronger than expected sales performance in 1H17, the upbeat 2017 export volume guidance and the company's plan to increase capacity into our 2017-18 projections. This resulted in a new target price of TRY53.00 per share (up from TRY40.00 per share previously). However, considering the limited upside potential and the 2018E EV/EBITDA of 8.5 and P/E of 10.9, which are on par with Ford Otosan's peer group, we think that the share price fairly reflects the company's prospects. Hence, we keep our HOLD rating.Ford Otomotiv Sanayi is an automobile manufacturing company based in Turkey. Co. operates as a joint venture between Ford Motor Company and the Koc Group of Companies. Co. is engaged in manufacturing, assembling and selling motor vehicles, primarily commercial vehicles, imports and sells passenger cars and manufactures and imports and sells spare parts of those vehicles. Co. has two plants located in Kocaeli and Eskisehir, has a spare part distribution warehouse in Kartal, Istanbul and a branch in Tubitak Marmara Research Centre, Gebze Campus Technological Free Zone (TEKSEB).
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