Teb Yatirim - Kardemir Karabuk Demir Celik Sanayi ve Ticaret A.S. D (KRDMD) Kardemir (KRDMD TI) - 1Q18: Significant beat, on forex: Maintain Buy

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Teb Yatirim

Erdem Kaylı

Kardemir (KRDMD TI) - 1Q18: Significant beat, on forex: Maintain Buy

Kardemir’s 1Q18 net income of TRY235m overshot our estimate of TRY122m and the Research Turkey consensus estimate of TRY131m. The deviation at the bottom-line came from lower than expected FX loss, lower effective tax rate (10% vs. our estimate of 22%) and higher than expected dividend income from its affiliates. 1Q18 EBITDA of TRY375m came in-line with our estimate of TRY361m but higher than the Research Turkey consensus of TRY337m.

We stick to our positive stance on Kardemir as it offers exposure to a promising re-rating story on better cash generation capability via better product mix and volume growth.

02/05/2018 8 EN

Underlying

Kardemir Karabuk Demir Celik Sanayi ve Ticaret A.S. D

Kardemir Karabuk Demir Celik Sanayi ve Ticaret manufactures and sells raw iron and steel products and coke and coke side products. KARABUK Co.'s products include: Steel Products - Blooms, Billets and Beam Blank; Rolling Mill Products - Hot Rolled Round Steel (Bars), Hot Rolled Round Steel (Deformed Bars), Steel Nip Beams, Steel Npu Profiles, Equal Angles, GI Profile, Rails and Billets; Coke Products - Coke Plant Products, Ammonium Sulphate, Pressed Naphthalane, Tar Paint, Carbolic Oil, Grude Benzole, Refine Washed Oil and Crude Tar and Other Products - Pig Irons, Granule Slag, Oxygen, Nitrogen, Argon.

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TRAKRDMR91G7 Istanbul Stock Exchange Turkey

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Teb Yatirim

TEB Investment equity research analysts and strategist team consists of 8 analysts with an average finance sector experience of 15 years and special focus on international investors.

With our 6 equity research analysts we cover 93 companies across 21 sectors, reflecting 80% of the total market capitalization of all BIST companies and 86% of the BIST100 companies. Our strategy team provides in depth top-down and bottom-up market views with insight on FX and bond markets by publishing sectoral and strategic reports both in English and Turkish.

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Analysts

Erdem Kaylı

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We are downgrading our rating for Kardemir (D-type shares) to Hold from Buy. We have slightly revised down 12M TP by 3% to TL22.5/s, implying 12M total return potential of 7% and corresponding to a Hold rating. Shares returned 41%/23% in USD over the past 3M/1Y with a 36% outperformance vs. BIST-100 over the past three months. Accordingly, on our estimates, Kardemir is trading FY23E P/E of 5.7x (vs. 5Y median: 6.1x) and EV/EBITDA of 3.3x (vs. 5Y median: 3.6x), thus close to its historic averages. We expect Kardemir’s EBITDA/tonne to improve sequentially in 1H23 from USD67 in 4Q22 led by 1) Pro...

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Ünlü&Co

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Excluding Kardemir from our top picks: We are excluding Kardemir from our top picks. Shares have returned 58% in absolute TRY terms and performed in-line (1% outperformance) vs. BIST-100 since its inclusion to our model portfolio since January, 2021. While shares have reached an outperformance in excess of 40% in early March 2022; substantial increase in global recessionary concerns coupled normalization of the initial surge in regional steel prices related to the Russia/Ukraine conflict have led to a tangible decline in product prices and spreads. While we maintain our fundamental positive vi...

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Kardemir A (KRDMA, N/R) and B (KRDMB, N/R) shares are trading at c.23% discounts vs D (KRDMD TI, Buy) shares, which is close to their highest discounts over the past three years, following their 10% underperformance vs the BIST-100 in the past three months. From a purely mechanical standpoint, KRDMA and KRDMB should theoretically trade at least at par with KRDMD, given their higher voting rights. Independent of our fundamental view on Kardemir, we believe the divergence is worth flagging from a mechanical point of view, given the proximity of the pairs (A vs. D & B vs. D) to a potential mean r...

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TURKEY STEEL - Strong outlook prevails

We believe Turkish blast-furnace steelmakers are poised for stellar earnings growth in 2021, supported by favourable global steel sector outlook. Following the cut in steel production, owing to fall in demand as a result of Covid-19, steel supply is yet catch up with the pick-up in demand. We expect the supply-demand mismatch to continue over the near term, as we expect strong demand post Covid-19. While the current steel prices may be unsustainable with the normalisation in supply, we believe the robust earnings momentum expected in 1H21 provides enough room for further re-rating.

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Turkcell’s net income soared by 51% y-y to TRY1.2b, beating both RT consensus of TRY1.04b and our TRY975m estimate. EBITDA grew by 16% y-y to TRY3.4b, in-line with our estimate but better than RT consensus of TRY3.2b. Although the operating performance was in-line with our estimate, lower than expected impairment losses on financial and contract assets (TRY49m in 3Q20 vs our estimate of TRY150m) and lower than expected financial expenses boosted the bottom line. Higher operational capex pushed up net debt and impacted the company’s 2020 guidance. Maintain HOLD on TCELL.

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Ulker Biskuvi Sanayi (ULKER TI) - Proven resilience: Maintain Buy

Ulker’s net income increased by 27% y-y to TRY323m in 3Q20, beating both our estimate of TRY249m and RT consensus of TRY239m. The operating performance, in terms of EBITDA growth and margin, was slightly better than our estimate while fair value increase of short-term financial assets further boosted the bottom-line beat. Following upbeat 3Q20 results, we maintain BUY on ULKER, on the back of its attractive valuation and resilient operations.

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Kardemir (KRDMD TI) - 1Q18: Significant beat, on forex: Maintain Buy

Kardemir

Top Picks Portfolio

Kardemir

TURKEY STEEL - Strong outlook prevails

Turkcell (TCELL TI) - Investments on the rise: Maintain Hold

Ulker Biskuvi Sanayi (ULKER TI) - Proven resilience: Maintain Buy

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