Tupras (TUPRS TI) - Depressed outlook persists: Maintain Hold
Tupras’ crack margins have significantly missed expectations built up by the IMO 2020 sulfur cap implementation, due to a fall in bitumen + high sulphur fuel oil (HSFO) prices and stagnant middle distillate prices. Along with weak bitumen prices, we expect a refinery capacity glut in China to worsen global refinery prices. Even if Chinese refineries respond to the coronavirus outbreak-led demand decline by significantly cutting throughput, we expect the global supply-demand dynamics to continue to put pressure on Tupras’ profitability in the mid to long term.
Despite factoring in a lower risk-free rate assumption of 13% (previously 17%) and updated macro forecasts, we cut our SoTP based TP by 17% to TRY115.2 and maintain HOLD due to stagnant product cracks amid the IMO 2020 sulphur cap regulation implementation. We believe that the current risk/reward profile is unappealing as the stock trades at 5.8x 2020E EV/EBITDA, implying 28% premium to its peers. After no dividend distribution from 2019 earnings, we believe that 2020E dividend yield of 4% will be less attractive than its 10-year historical average of 8%.
Turkiye Petrol Rafinerileri is an energy and refining company based in Turkey. Co. is engaged in providing and refining crude oil, the importing and exporting of oil products, and establishing and operating refineries in Turkey and foreign countries. Also, Co. is establishing and operating factories and facilities in the petrochemical industry. Co. is engaged in purchasing, selling, importing, exporting, storing, marketing and distributing (wholesale, retail, foreign and domestic) all kinds of petroleum products, LPG and natural gas. Co. runs its business through the refineries in Izmit, Izmir, Kirikkale and Batman.
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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