TURKEY STEEL - Poised for a recovery
Slowing steel production in China has caused raw material prices to normalize, indicating better margins for Turkish integrated steel companies, in our view. After a painful 2019, as input cost surged amid falling product prices, we believe that the worst is likely to be over by 4Q19 and a gradual recovery in margins should kick in, owing to the modest increase in steel prices and a normalization of iron ore prices. Even though we expect the price recovery to be gradual based on a stagnant demand outlook, we believe that tightening supply-demand balance should provide better margins for blast furnace steel makers like Erdemir and Kardemir.
We raise Erdemir and Kardemir’s 2020E EBITDAs by 24% and 19%, respectively, on higher sales and lower raw material prices. We raise our TP for Kardemir by 48% toTRY2.81 and for Erdemir by 53% to TRY15.07. We prefer Erdemir over Kardemir given its more attractive valuation and resilient earnings momentum. We believe that Erdemir continues to benefit from healthier flat steel pricing as we believe that Turkish flat steel cash margins continue to outpace long steel margin in the near term.
Eregli Demir Ve Celik Fabrikalari is engaged in the production of iron and steel rolled products, alloyed and non-alloyed iron, steel and pig iron castings, cast and pressed products, coke and their by-products.
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.
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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