BofA | TOFAS:Healthy 2Q recovery; reiterate Buy

Increase FY22E-23E EPS on avg by 21%; remain bullish
We update our model for Tofas’ healthy 2Q results and increased domestic volume guidance for FY22E: 140k-155k units vs old: 125k-140k units. This is partially offset by
weaker export shipments guidance of 110-125k units vs old: 125k-140k units. We also take into account new FX forecasts for FY22E/23E. USD/TRY for FY22E/23E: 17.91/
24.80 vs old: 16.6/20.8. On the back on this we increase our FY22E-23E EPS by 21% on average and increase our PO to TRY 115 from TRY 104.

We reiterate our Buy – Tofas currently trades on a 12-month forward PE of c.4.1x, an attractive discount of c.55% to its long-term average while offering a FY22E dividend yield of c.15%. The stock also features in our EEMEA 1 list.

Solid pick-up in domestic market shipments in 2Q
Domestic market saw a healthy pick-up in shipments – up 70% q/q supported by slight easing in supply chain driven production constraints and robust domestic demand as consumers look at autos as relatively more attractive investment opportunities due to negative real interest rates in Turkey.

Export shipments, on the other hand, saw relatively slower growth – up 9% q/q. Passenger car (PC) exports contracted 39% y/y in 1H22 driven by supply optimization by Stellantis owing to limited supply of raw materials, In addition, PC witnessed higher production constraints compared to LCV (light commercial vehicle).

Limited negative impact of Doblo production in Spain
For 2023, Tofas does not expect a major drop in Doblo volumes as a result of Stellantis producing the new version of Doblo for the European market in Spain. The company believes that volumes will be strong in the local market as well as the North American market, offsetting any significant decline from volumes lost in the European market.

Assessments on new projects and prolongation of Fiat Doblo production until the end of 2023 to serve Turkey, North America and MENA regions remain in progress.