WOOD Flash – Emlak Konut: 2017 unit sales and 2018E guidance

This morning (9 January), Emlak Konut published its unit sales guidance and expected land tenders for 2018E, as well as the unit sales results for the rest of FY17.
Being substantially stronger than the rest of the year, the unit sales in the last two months (November-December) were broadly in line with our expectations, as we assumed that sales would improve, but that Emlak would fall short of its 2017E unit sales guidance. However, the unit sales guidance for 2018E does not strike us as unachievable (total sales value implies a 6% drop relative to 2017), provided that Emlak sells more smaller units, keeping the average unit price close to TRY 1.0m. Finally, the tender guidance is marginally positive, as Emlak expects to tender more plots than we expected in our forecasts. However, we believe that the achieved tender multiple is likely to drive the share price.
We continue to see Emlak as a valuation BUY. The stock trades at 50% P/NAV. In our last conversation with the company, we understood that management is planning little to no land purchases in 2018E. Together with the expected inflows from off-balance sheet receivables and unit sales, this should improve Emlak’s cash position. We see Emlak generating around TRY 1.8bn of FCF annually over our forecast horizon. That said, we believe that the prerequisites for a rerating are either: a) land tenders carried out at a strong multiple; or b) a substantial pick-up in the unit sales dynamics; or a combination thereof.