Aselsan: Guidance at risk post-3Q20, estimates cut (stays HOLD)

Following Aselsan’s 3Q20 results, we have revisited our valuation model and earnings estimates, to reflect the continuing poor execution in the past quarter. Having started the year with a slow 1Q and a weak 2Q20 (revenues flat yoy due to COVID-19 driven supply disruptions), Aselsan delivered mediocre 6% top-line growth in 3Q20, despite the tailwind from the weaker TRY qoq: the majority of its revenue stream is in hard currencies. Although the fourth quarter is usually the strongest for the company (accounting for 41%/45% of its annual revenues/EBITDA in 2019), we do not believe that management can deliver on its FY20E guidance, which implies 40-50% top-line growth and a 20-22% EBITDA margin, following the slippage in 9M20 (revenues up merely 10%). Hence, we have cut our 2020/21E revenue/EBITDA forecasts, but also reflect higher FX rate assumptions in our model, resulting in slightly higher net income estimates in 2020/21E. Our revised 12-month price target (PT) of TRY 16.35/share (TRY 16.71/share previously) offers a limited 6% downside potential. We maintain our HOLD rating on the stock.