ARCELIK: New stories, defensive structure, attractive multiples

We initiate coverage for Arçelik (ARCLK TI) with a 12-month target price of TRY44.00
and a BUY recommendation. Our target price implies a 37% return potential. We like Arçelik thanks to i) support of new acquisitions to growth ii) decrease in the pressure of
high raw material prices on margins iii) defensive structure against volatility in
exchange rates thanks to the high share of export iv) ongoing share buybacks v)
attractive multiples vi) regular dividend yield.

■ New acquisitions will support revenue growth. While Arçelik continues
acquisitions, it acquired two new companies in 2021. We anticipate that the
acquisitions will create new stories for the Company and support revenue growth.
We think that the Asia-Pacific region, where Arçelik Hitachi Home Appliances will
operate, is a very attractive region for growth with its high population and low
white goods penetration. We estimate that Arçelik will record 54% and 28%
revenue growth in 2021 and 2022, respectively.

■ The pressure of high raw material prices on the margins will decrease. EBITDA
margin contracted by 4.7ppt QoQ in 2Q21 because of higher raw material prices.
We expect that quarterly and annual contractions in the margins in 3Q21 may
continue due to the pressure of high raw material prices and the effect of
acquired companies, which operates with lower margins compared to Arçelik. On
the other hand, we forecast that the margins will start to improve quarterly as of
the 4Q21.

■ Defensive structure against the volatility in exchange rates with the high share
of export. Export sales constitute 65-70% of Arçelik’s total sales and Europe is the
main export market. We think that the high share of export provide the Company
a defensive structure against the volatility in exchange rates.

■ Share buybacks continue. Arçelik has consistently maintained its buyback
program announced on July 1, 2021 and 29,602,483 shares, corresponding to
4.3808% of the Company’s capital, have been bought back until today. We see the
ongoing buyback program as a supportive factor in terms of share performance.

■ Attractive multiples. According to our 2022 estimates, Arçelik trades with 4.2x
EV/EBITDA and 6.4x P/E multiples, respectively, at discounts of 24% and 39%
compared to its global peers. Therefore, we can say that Arçelik has attractive

■ Regular dividend yield. Arçelik paid regular dividends in the last 12 years, except
2018 and 2019. We expect Arçelik to continue to distribute dividends in 2022 as
well. Our estimation is that the Company will announce a net income of TRY2.9bn
in 2021. Based on our net income estimation, we expect it to pay a total gross
dividend of TRY1.4bn (gross TRY4.27 per share) in 2022, assuming a 50% dividend
payout ratio. According to last close, it implies 6.7% dividend yield.


Deniz Yatirim