Hektas (HEKTS TI) - The second leg of growth: Initiating at Buy
Hektas is Turkey’s largest agricultural chemical producer and an important fertilizer maker. After new management took over in 2016, Hektas has aggressively increased its market share in agricultural chemicals and expanded into other markets such as fertilizers, animal health and seed breeding. This led to average net profit growth of 68% over FY16-1FY18 compared to only 7.6% for the three years prior to FY16.
We expect strong growth to continue for Hektas driven by capacity expansion for pesticides and fertilizers. We expect this new capacity to be almost fully utilized by FY22, by when we estimate revenue to grow to TRY1.8b (40% CAGR from FY18) and net income to grow to TRY428m (45% CAGR from FY18).
Hektas trades at 4.7x 2020E PE and 4.6x 2020E EV/EBITDA, which are near its five-year lows. Given that we believe Hektas’ net profit will quadruple over the next four years on a USD indexed basis, we believe valuations are attractive and initiate on the stock with a BUY. Our DCF based TP of TRY22.48 uses a WACC of 20.2% and a terminal growth rate of 8%.
Hektas Ticaret TAS. Hektas Ticaret TAS (Hektas) is a Turkey-based company engaged in the production and marketing of agricultural chemicals and veterinary products and medicines. The Company operates two factories in the Gebze and Sanliurfa Organized Industry Zones. The Gebze Plant has an annual production capacity of 52,766 tons, whereas the Sanliurfa Plant has an annual capacity of 22,360 tons. It offers agrochemicals and veterinary products, including agricultural and home insecticides, herbicides, fungicides, foliar fertilizers, plant growth regulators, fumigants, organic farming products, antibacterial and antiparasitic drugs, vitamins and hormones. The Company's products are marketed to over 1,500 dealers and distributors of agricultural chemicals and pesticides through its regional offices in seven cities across Turkey. The Company is a subsidiary of OYAK.
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