SISE Buy: Top-line growth to offset margin decline

2022 is mainly about top-line growth.

We believe 2021 concluded with firmer operating margins y-o-y for Sisecam despite a weaker Q4 due to an accelerated cost push, particularly in energy input prices. Positive FX exposure should have led also to strong profitability last year, which we estimate has surged 3.6x y-o-y. Our 2022 outlook is for weaker operating margins but solid top-line growth, leading to further notable EBITDA expansion in absolute terms. We project total revenue of TRY60.3bn with y-o-y growth of 88%, driven by FX, price actions, firmer soda ash prices (c10%), sales volume growth between low to high single digits for different product groups, and inorganic growth (USD575m or cUSD8bn) from Ciner Resources (the new natural soda mine acquired in the US).

We assume moderately softer EBITDA margin of 21.7% (vs 23.1% in 2021e) with price adjustments helping to partially offset the cost push, particularly from energy price hikes, including gas and electricity.

New US projects in our valuation at NPV of USD1.22bn.

In Dec-2021, Sisecam finalised a deal to become majority (60%) partner to the Ciner Group’s natural soda ash operations and future projects in the US via a cash payment of USD450m and committing to 60% of the total USD4bn investments planned in the next 4-5 years.

With this strategic move, Sisecam-controlled soda ash production capacity will exceed 10m metric tonnes, from 2.5m metric tonnes today, making it one of the global leaders with more than 10% market share by 2027-28e.

We incorporate this project into our forecast and valuation model, deriving an NPV of USD1.22bn for Sisecam’s 60% stake in the operation. This has boosted our chemicals segment valuation by 180% to cTRY31bn (from cTRY11bn), now comprising c50% of our SOTP model (from 29%). Between 2022e-28e, we expect the US share in chemicals segment revenue to rise from c43% to c67%, and share of the chemicals segment in total group revenue to rise from c30% to c35% (EBITDA share from 39% to 47%).

Raise TP to TRY17.70 from TRY12.15, retain Buy.

Our valuation rests on an equally weighted SOTP (new fair value TRY20.07 from TRY12.04, due mainly to new
US projects in chemicals) and valuation multiples (new fair value TRY15.32 from TRY12.27, driven by revised forecasts). We use ‘fair multiples’ for Sisecam (2022e
P/BV 1.3x, PE 8.2x, and EV/EBITDA 5.8x) using the stock’s historical trading multiples and Turkish industrials averages. At a 2022e PE of 4.4x, the discount to global peers is c45%. We expect negative FCF in upcoming years due to a heavy capex cycle but continuation of dividend payments thanks to low leverage.



HSBC Global Research