SISE – Buy: 2021 HSBC Global Emerging Markets Forum

Trading update.The renovation market and secondary processor demand continue to keep architectural glass volumes vibrant in Turkey. The demand outlook at least in the next six months is strong thanks to the pent-up demand and potential revival of housing activity if rate cuts continue. Export markets also remain strong with scarce supply due to cold repairs by some competitors and weaker competition from Asian players. Auto glass is the only operation lagging notably behind expectations due to supply shortages limiting OEM’s production volumes despite healthy demand; hence pent-up demand supports the 2022 outlook. In chemicals, better contract prices for FY22, also support this segments 2022 outlook, following weaker prices this year.

Cost trends and margin outlook.The main concern for investors has been the surge in energy, raw material and logistics costs globally. Sisecam believes it has been a ‘sellers market’ since early 2021 in flat glass and will likely remain so in 2022. Therefore, producers should have further room to reflect cost increases in their product prices. The current demand environment supports prices in the local market while in Europe the pricing environment already reflects the cost increases, with Sisecam following market pricing dynamics. Gas costs are partially hedged in Europe, but some negative impact on margins looks likely due to lagged price adjustments in Turkey. Full-year 2021 consolidated EBITDA margin will likely contract moderately compared to H1, but should still be comfortably above the FY20 level.

New Investments/dividends.As per demand projections, Sisecam decided on new capacity Investments in flat glass in Turkey and glass packaging in Europe which will come online in 2023-25 at a total cost of cUSD700m. Sisecam estimates a payback period of 7 years for the float line investment in Turkey. The company expects leverage to increase from currently very low levels (0.4x)to maximum 2x, still below its comfort level of 2.5x. Dividend pay-out averaged 21%in the last 10 years and was 23% for 2020.It plans a gradual increase in future.

We raise our TP to TRY12.16 and reitarate our Buy rating. We raise our target prices to TRY12.15 from TRY11.80 driven by revised (and higher) peer multplies and DCF roll-forward. Our forecasts remain unchanged. Based on 48.7%implied upside, we maintain our Buy rating.


HSBC Global Research