WOOD Flash - Emlak Konut: 3Q18 review - predictably weak

Emlak trades at 70% discount to NAV. We believe the deep discount reflects concerns related to the difficult external environment, with high interest rates and falling real house prices. Data compiled by REIDIN Gyoder suggests that prices of new apartments are c.20% below the 2010 levels, having declined c.27% over the past three years. Combined with rising overhead costs and growing net debt, we believe the recent weak tender performance could translate into deteriorating profitability going forward. This, in turn, is likely to impact the dividends, in our view. As economic growth in Turkey is forecast to slow sharply (Bloomberg consensus points to a 4Q18 GDP growth of 0%), we believe that meeting Emlak’s ambitious 4Q18E unit sales guidance may prove difficult, especially without launching another campaign. Moreover, while starting a new campaign could help Emlak reach the unit sales target, in the short-term, it would come at the cost of a further increase in net debt. As we believe the external environment is likely to remain challenging, and we do not expect Emlak to tender additional land plots in the remainder of the year, we do not see many company-specific triggers which could cause a tangible rerating in the very near term.