Otokar: upgraded on improved prospects (upgraded to BUY)

Following Otokar’s strong 4Q21 beat and FY21 results, we have rolled over our valuation model and revised our earnings forecasts, reflecting Otokar’s improved operational performance in 2H21 (with several new contract wins), its recently-activated Iveco licence production agreement, and the positive impact of a weaker TRY. As an export-orientated company (73% of its 2021 revenues attributable to exports), with low leverage, we believe Otokar should emerge as a net beneficiary of a weaker TRY (despite higher cost pressures caused by the soaring inflation in Turkey). Our elevated FX rate assumptions and upgraded commercial vehicle export forecasts have a disproportionate effect on our TRY revenue and earnings forecasts, resulting in 65%/89% higher revenue and NI estimates for 2022E, respectively (while, on our 2023E numbers, our estimates revisions for revenue and NI are even more pronounced, at +143%/+208% in TRY terms). Our revised model (also reflecting a higher TRY WACC) implies a 12M price target (PT) of TRY 570.4/share (31% above the consensus), suggesting 46% potential upside. Post its 20% relative underperformance vs. the BIST-100 over the past year, we have upgraded our rating for the stock to BUY (from Sell).